Question

The Blackburn Group has recently issued 20minus​year, unsecured bonds rated BB by​ Moody's. These bonds yield 443 basis points above the U.S. Treasury yield of​ 2.76%. The yield to maturity on these bonds is

Answer 1

Step-by-step explanation:

First, convert the basis points to a percentage or decimal;

1 basis point = 0.01% or 0.0001 as a decimal

Then 443 basis points as a decimal will be;

443 *0.0001 = 0.0443 or 4.43% as a percentage

Next, since the BB bond is 4.43% above the U.S. Treasury yield of 2.76%, find the Yield to maturity(YTM) by adding the 4.43% to the 2.76%;

YTM = 2.76% + 4.43%

YTM = 7.19%