The yield to maturity (YTM) for Abner Corporation's bonds is calculated taking into account the annual interest, purchase price, face value, and time to maturity, but requires a complex calculation often handled by financial calculators. Similarly, the YTM for Vail Inc.'s bonds is based on the coupon rate, market yield, and price paid for the bond.
To calculate the yield to maturity (YTM) for Abner Corporation's bonds, we need to consider the annual interest payment, the price paid for the bond, the face value, and time to maturity. The bond pays an annual interest of 12% on its face value of $1,000, which amounts to $120 per year. With the purchase price set at $1,050, the maturity at 16 years, and ignoring taxes and transaction costs, the YTM can be calculated by solving the bond valuation formula:
P = (C * (1 - (1 + r)^-n))/r + F/(1+r)^n
However, without a financial calculator or software, this complex calculation is simplified only for the purpose of example and illustration:
Assume the bond will be redeemed at its face value of $1,000 at maturity. Let's say an investor purchases it for $1,050 and holds it until maturity, receiving $120 annually. The YTM in this case would be the internal rate of return that equates to the present value of all future cash flows (interest payments) and the redemption value, to the bond's price. As for the Vail Inc. bonds, given the current market price of $1,070 and a coupon rate of 15% with the market required yield at 12%, the YTM and bond value can be calculated similarly, considering prevailing market interest rates and coupon payments.