Final answer:
The YTM is the total return expected on a bond if it is held until maturity, considering interest payments and capital gains or losses. To compute the YTM for Stone Sour Corp's bonds, one must take into account semiannual coupon payments, the bond's selling price, and the remaining years to maturity. Determining the exact YTM involves complex calculations and often requires a financial calculator.
Step-by-step explanation:
The question pertains to the calculation of the Yield to Maturity (YTM) for Stone Sour Corp's bonds that were issued 6 years ago with a 28-year maturity and a coupon rate of 5.45 percent, currently selling at 111 percent of par value. To find the YTM, which represents the total return from interest payments and capital gains, we must consider the bond's coupon payments, its face value, its current price, and the remaining years until maturity.
A bond's YTM is calculated by looking at the annual coupon payments it generates, plus any difference between its purchase price (current market price) and the face value (which the investor will receive at maturity). Given that bond prices fluctuate to reflect interest rate changes, bonds will sell for less than face value when interest rates rise, and for more than face value when interest rates fall. In this case, since the bonds are selling for 111 percent of par value, we understand that interest rates have fallen since the bonds' issuance.
To accurately calculate the YTM, it might require complex financial formulas or a financial calculator since it involves finding the rate that equates the present value of the bond's future cash flows to its current market price. This process is beyond the scope of the current answer format, but in essence, YTM considers periodic coupon payments, the time left until maturity, and the capital gains or losses associated with holding the bond until maturity.