Question

Springfield nuclear energy inc bonds are currently trading at 283.30. The bonds have a face value of $1,000, a coupon rate of 2% with coupons paid annually, and they mature in 20 years. What is the yield to maturity of the bonds?

Answer 1

The yield to maturity of the bonds is 11%

Step-by-step explanation:

Price at which the bonds is currently trading = 283.30$

Face Value = $1000

Coupon rate = 2%

Hence the coupon bond rate = $1000 ×2%

=
`1000* (2)/(100)`

=$20

Years to maturity: 20 years

Formula used:

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

Where C is the bond coupon rate

F is the face value

P is the price

N is the number of years

=
`((20 +(((1000-283.30))/(20)))/((((1000+283.30))/(2)))`

=11%

The yield to maturity of the bonds is 11%