Question

A Japanese company has a bond outstanding that sells for 90 percent of its ¥100,000 par value. The bond has a coupon rate of 5.7 percent paid annually and matures in 19 years. What is the yield to maturity of this bond? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

The yield to maturity of this bond is 6.55%

Step-by-step explanation:

Yield to maturity is the rate of expected return on a bond which is held until the maturity. It is considered as a long term return and expressed in annual terms.

According to given data

Coupon payment = C = 100,000 x 5.7% = $5,700

Face value = F = 100,000

Price = P = 100,000 x 90% = 90,000

Number of year to mature = 19

Use following formula yo calculate YTM

Yield to maturity = [ C + ( F-P)/n ] / [ (F+P)/2 ]

Yield to maturity = [ $5,700 + (100,000-90,000)/19 ] / [ (100,000+90,000)/2 ]

Yield to maturity = 6,226.32 / 95,000 = 0.0655 = 6.55%