Question

BCtronics Corp. issued 12 year bonds 2 years ago with a coupon rate of 9.2%. The bonds make semiannual payments and have a $1,000 par value. If these bonds currently sell for 104% of par value, what is the YTM

Answer 1

8.60%

Step-by-step explanation:

Face value of the bond = $1000

Years = 10 years (12-2). Semiannual number of periods = 20 (10*2)

Semiannual coupon rate = 9.2%/2 = 0.046

Semiannual coupon payment amount = 0.046*1000 = 46

Present value = 1000*104% = $1040

Value of YTM can be derived using Ms excel

Yield to maturity = YTM (No of periods, Payments, Present value, Face value) * 2

Yield to maturity = YTM (20, 46, 1040, 1000) * 2

Yield to maturity = 4.30% * 2

Yield to maturity = 8.60%