Question

Hooper Printing Inc. has bonds outstanding with 9 years left to maturity. The bonds have a 8% annual coupon rate and were issued 1 year ago at their par value of $1,000. However, due to changes in interest rates, the bond's market price has fallen to $908.30. The capital gains yield last year was -9.17%. What is the yield to maturity?

Answer 1

9.56

Step-by-step explanation:

We will calcualte the YTM with an aprroximation method:

`YTM = (C + (F-P)/(n ))/((F+P)/(2))`

Coupon payment= 80 (1,000 face value x 8% bond rate)

Face value= 1000 face value

Market Price= 908.3

n= 9

`YTM = (90 + (1,000 - 908.3)/(9))/((1,000 + 908.3)/(2))`

quotient 9.4522757%

This will be the aproximate YTM

Another way to solve it is with the Excel

we will write each cah flow and use the IRR function

-908.3

80

80

80

80

80

80

80

80

1080 (1,000 principal + 80 coupon payment)

now we write on any empy cell "=IRR(" and select the cells with the cashflow

The YTM will be 9.56%