Question

A Japanese company has a bond outstanding that sells for 96% of its ¥100,000 par value. The bond has a coupon rate of 6.3% paid annually and matures in 19 years. What is the yield to maturity of this bond (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places.

Answer 1

What is the yield to maturity of this bond

6.68%

Step-by-step explanation:

To know the Yield to maturity of the bond, we need to calculate the Internal Rate of Return of the investment.

We invest 96% of the price $ 96,000, and receive 19 payments of $6,300 each one, and at the end of the period the nominal value of the bond, $100,000, the result it's an internal rate of return of 6,68%

To corroborate the result, we can calculate a Present Net Value with the 6,68% as discount rate, and the result will be $96,000, the actual price.

YTM = 6,68%

Investment -96.000

Year 1 $6,300

Year 2 $6,300

Year 3 $6,300

Year 4 $6,300

Year 5 $6,300

Year 6 $6,300

Year 7 $6,300

Year 8 $6,300

Year 9 $6,300

Year 10 $6,300

Year 11 $6,300

Year 12 $6,300

Year 13 $6,300

Year 14 $6,300

Year 15 $6,300

Year 16 $6,300

Year 17 $6,300

Year 18 $6,300

Year 19 $106,300