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.)

Question

Emma Drake

Business

3 September, 16:58

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.)

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Vincent Freeman · Answer 1

The yield to maturity of this bond is 6.55%

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%