Question

Watters Umbrella Corp. issued 20-year bonds 2 years ago at a coupon rate of 6.4 percent. The bonds make semiannual payments. If these bonds currently sell for 110 percent of par value, what is the YTM

Answer 1

2.78%

Step-by-step explanation:

The YTM formula is:

YTM = {coupon + [(face value - market value)/n]} / [(face value + market value)/2]

• coupon = $32
• face value = $1,000
• market value = $1,000 x 110 = $1,100
• n = 18 x 2 = 36

YTM = {$32 + [($1,000 - $1,100)/36]} / [($1,000 + $1,100)/2] = $29.222 / $1,050 = 2.78%