Question

Ivanhoe, Inc., has bonds outstanding that will mature in 8 years. The bonds have a face value of $1,000. These bonds pay interest semiannually and have a coupon rate of 4.6 percent. If the bonds are currently selling at $886.92, what is the yield to maturity that an investor who buys them today can expect to earn? (Round answer to 3 decimal place, eg. 5.275%)

Yield to maturity ___%
What is the effective annual yield? (Round answer to 3 decimol ploces, es. 5.275%.)
Effective annual yield ___%

Answer 1

The yield to maturity for the bonds is approximately 6.585% and the effective annual yield is approximately 6.868%.

Step-by-step explanation:

The yield to maturity (YTM) for the bonds is calculated by finding the interest rate at which the present value of all future cash flows (including the face value and semi-annual coupon payments) equals the current market price of the bonds. In this case, the yield to maturity is approximately 6.585%.

The effective annual yield (EAY) is the annual rate of return earned by an investor who holds the bond to maturity and reinvests the coupon payments at the same rate. In this case, the effective annual yield is approximately 6.868%.