Question

Pharoah Corp. has five-year bonds outstanding that pay a coupon rate of 8.7 percent. If these bonds are priced at $1,063.16. Assume face value is $1,000. (Round answers to 2 decimal places, e.g. 15.25\%.) What is the yield to maturity on these bonds, assuming semiannual payments? Yield to maturity % Assume semiannual coupon payments. What is the effective annual yield? Effective annual yield % Pharoah Corp. has five-year bonds outstanding that pay a coupon rate of 8.7 percent. If these bonds are priced at $1,063.16. Assume face value is $1,000. (Round answers to 2 decimal places, e.g. 15.25\%.) What is the yield to maturity on these bonds, assuming semiannual payments? Yield to maturity % Assume semiannual coupon payments. What is the effective annual yield? Effective annual yield %

Answer 1

To calculate the yield to maturity on these bonds, divide the annual coupon payment by the bond price and find the semi-annual yield. The yield to maturity is 16.4% and the effective annual yield is 17.33%.

Step-by-step explanation:

To calculate the yield to maturity on these bonds, we need to divide the annual coupon payment by the bond price and then find the semi-annual yield. The coupon payment can be calculated by multiplying the face value of the bond by the coupon rate.

In this case, the coupon payment is

$1,000 x 8.7% = $87.

The bond price is given as $1,063.16.

Therefore, the yield to maturity is

($87 / $1,063.16) x 2 = 16.4% (rounded to 2 decimal places).

To find the effective annual yield, we need to consider the semi-annual coupon payments and compounding. The semi-annual yield is 16.4%, so the semi-annual interest rate is

16.4% / 2 = 8.2%.

The effective annual yield can be calculated using the formula (1 + semi-annual interest rate)^2 - 1.

Plugging in the values, we get (1 + 0.082)^2 - 1 = 17.33% (rounded to 2 decimal places).