   Chapter 7, Problem 4P Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

YIELD TO MATURITY A firm’s bonds have a maturity of 10 years with a 51,000 face value, have an 8% semiannual coupon, are callable in 5 years at $1,050, and currently sell at a price of$1,100. What are their nominal yield to maturity and their nominal yield to call? What return should investors expect to earn on these bonds?

Summary Introduction

To determine: Yield to maturity (YTM).

Yield to Maturity: Yield to maturity refers to the rate of interest earned till the maturity of the bond by the bond holder.

Explanation

Given,

Semiannual coupon rate is 8%.

Selling price (value of bond) is $1,100. Par value of bond is$1,000.

Maturity is after 10 years.

Yield to maturity (YTM) can be calculated through value of bond.

Formula to calculate present value of bond,

Bond'svalue=t=1NINT(1+rd)t+Parvalue

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