West Corp. issued 25-year bonds two years ago at a coupon rate of 5.3 percent. The bonds make semiannual payments. If these bonds currently sell for 105 percent of par value, what is the YTM

Question

Leonidas Leach

Business

12 February, 12:51

West Corp. issued 25-year bonds two years ago at a coupon rate of 5.3 percent. The bonds make semiannual payments. If these bonds currently sell for 105 percent of par value, what is the YTM

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Answers (1)

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Dakota Galvan · Answer 1

YTM is 4.94%

Explanation:

The yield to maturity is the return on the bond throughout the bond's tenure and can be computed using rate function in excel as shown below.

=rate (nper, pmt,-pv, fv)

nper is the number of coupons the bond has left to pay (23 years*2)

pmt is the semiannual coupon of the bond=$1000*5.3%*6/12=26.5

pv is the curren price=$1000*105%=$1050

fv is the face value of the bond

=rate (46,26.5,-1050,1000) = 2.47%

2.47% is the semiannual yield

annual yield=2.47% * 2=4.94%