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3 February, 03:54

Adams Enterprises' noncallable bonds currently sell for $1,120. They have a 15-year maturity, an annual coupon of $85, and a par value of $1,000. What is their yield to maturity? 5.84% 6.15% 6.47% 6.81% 7.17%

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  1. 3 February, 04:05
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    Answer: 7.17%

    Explanation:

    Given,

    YTM = ?

    Annual Coupon, C = $85

    Par Value, F = $1000

    Current Bond Price, p = $1120

    Maturity Year, n = 15

    The yield to maturity is 7.17% from the data given in the question above. We will use the yield to maturity formula which stated as YTM = C + [ (F-P) / n] / [ (F+P) / 2] where YTM is the yield to maturity,

    C is the annual coupon,

    F is the par value,

    p is the current bond price, and

    n is the maturity year.

    YTM = 85 + [ (1000-1120) / 15] / [ (1000+1120) / 2]

    YTM = 7.17%
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