Question

Palmer Products has outstanding bonds with an annual 8 percent coupon. The bonds have a par value of $1,000 and a current price of $1,295.00. The bonds will mature in 11 years. What is the yield to maturity on the bonds?

a. 10.09%
b. 7.50%
c. 4.53%
d. 3.90%
e. 2.54%

Answer 1

4.53%

Step-by-step explanation:

You can solve this using a financial calculator with the following inputs;

Maturity of the bond; N = 11

Face value of the bond = 1,000

Current price of the bond ; PV = -1,295

Annual coupon payment ; PMT = coupon rate * face value

PMT = 8% *1000 = 80

Next, use the above inputs to find the Yield to maturity(YTM) of the bond by computing I/Y;

CPT I/Y = 4.53%

Therefore, YTM = 4.53%