Question

Last year Carson Industries issued a 10-year, 15% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,075 and it sells for $1,280. What is the bond's nominal yield to maturity

Answer 1

10.425%

Step-by-step explanation:

Given :

Present value of bond, PV = 1280

Par value of bond = $1000

Annual coupon rate = 15%

Coupon payment frequency = twice a year (semiannual)

Years to maturity = 10 years

Using the information above by inputting into a financial calculator, the bond's nominal yield to maturity output is : 10.425%

Yield to maturity (YTM) : 10.425%

It could also be used with the PMT value :

PMT = par value * coupon rate /2

PMT = (1000 * (0.15/2)) = $75

PERIOD, n = 10 years ; semiannual = twice a year ;

n = 10 * 2 = 20

Also using this values with the financial calculator, gives 10.425%