Final answer:
To calculate the Yield to Maturity for West Corp's 18-year bonds with a current selling price of 105% of par value and a coupon rate of 9.5%, one would need to use financial tools to take into account the semiannual coupon payments and the redemption at maturity. YTM is influenced by market interest rates and can fluctuate, affecting the selling prices and hence the yield of the bonds.
Step-by-step explanation:
When trying to determine the Yield to Maturity (YTM) of a bond, we're looking at the total return anticipated on a bond if the bond is held until it matures. In the case of West Corp., which issued 18-year bonds with a coupon rate of 9.5% that make semiannual payments and are currently selling for 105% of their par value, we need to consider the current selling price, the time left to maturity, the face value, and the coupon payments. Since they make semiannual payments, each payment is 4.75% of the face value (half of 9.5%).
The present selling price of the bond is 105% of the face value, so if the face value is $1,000, the bond is selling for $1,050. The bonds have 16 years left until maturity (18 years originally minus 2 years that have passed). To calculate the YTM, you would use a financial calculator or a spreadsheet to enter these cash flows (semiannual coupon payments and the final face value payment) and solve for the YTM rate that discounts these cash flows back to the current price of $1,050.
It's essential to note that different market factors such as changes in interest rates can cause the selling price of bonds to fluctuate above or below the face value. A bond issued at a higher interest rate than the current market rate will sell for more than its face value, thereby decreasing its YTM.