Question

The Timberlake-Jackson Wardrobe Co. has 11.9 percent coupon bonds on the market with seven years left to maturity. The bonds make annual payments and have a par value of $1,000. If the bonds currently sell for $1,113.46, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Yield to maturity

Answer 1

23%

Step-by-step explanation:

To find the answer, we need to use the Yield to Maturity Formula:

YTM =
`C + ((F - P) )/(n) / (F + P)/(2)`

Where:

• C = Coupon value (In this case 1,000 x 11.9% = 119)
• F = Par value
• P = Market Price
• n = Years to Maturity

Now, we plug the amounts into the formula and solve:

YTM =
`119 + (1,000 - 1,113.46 )/(7) / (1,000 + 1,113.46)/(2)`

YTM = 0.23

YTM = 23%