Bonds issued by the Coleman Manufacturing Company have a par value of $1,000, which of

course is also the amount of principal to be paid at maturity. The bonds are currently selling for

$690. They have 10 years remaining to maturity. The annual interest payment is 13 percent ($130).

Compute the approximate yield to maturity.

19.05%

Explanation:

the approximate yield to maturity (YTM) formula is:

approximate YTM = {C + [ (FV - PV) / n]} / [ (FV + PV) / 2]

C = coupon payment = $130 FV = face value or value at maturity = $1,000 PV = present value or current market value = $690 n = 10 years

approximate YTM = {$130 + [ ($1,000 - $690) / 10]} / [ ($1,000 + $690) / 2] = ($130 + $31) / $845 = $161 / $845 = 0.1905 or 19.05%