Question

Ashburn Corporation issued 20-year bonds two years ago at a coupon rate of 8.6 percent. The bonds make semiannual payments. If these bonds currently sell for 107 percent of par value, what is the yield to maturity?

Answer 1

The yield to maturity of the bond can be calculated using the formula (Annual Interest Payment + (Face Value - Current Price) / Years to Maturity) / Current Price.

Step-by-step explanation:

The yield to maturity is the total return an investor can expect to receive if they hold a bond until it matures. In this case, the bond issued by Ashburn Corporation has a coupon rate of 8.6% and a 20-year maturity. The bonds currently sell for 107% of par value, which means they are selling for more than their face value. To calculate the yield to maturity, we can use the formula:

Yield to Maturity = (Annual Interest Payment + (Face Value - Current Price) / Years to Maturity) / Current Price

Substituting the values, we have:

Yield to Maturity = (0.086 * 1000 + (1000 * 1.07 - 1000) / 20) / (1000 * 1.07)