Question

Greenbrier Industrial Products' bonds have a 7.60 percent coupon and pay interest annually. The face value is $1,000 and the current market price is $1,062.50 per bond. The bonds mature in 16 years. What is the yield to maturity

Answer 1

6.9%

Step-by-step explanation:

To find the answer, you have to use the formula to calculate the yield to maturity:

Yield to maturity= (C+(F-P/n))/(F+P/2), where:

C= Coupon payment= $1,000*7.60%= $76

F= Face value= $1,000

P= Price= $1,062.50

n= Years to maturity= 16

Yield to maturity=(76+(1,000-1,062.50/16))/(1,000+1,062.50/2)

Yield to maturity=72,09/1,031.25

Yield to maturity=0.069 → 6.9%

Accoriding to this, the yield to maturity is 6.9%.