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24 September, 22:30

A Japanese company has a bond outstanding that sells for 105.43 percent of its ¥100,000 par value. The bond has a coupon rate of 3.4 percent paid annually and matures in 16 years. What is the yield to maturity of this bond

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  1. 24 September, 22:59
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    The correct answer is 2.98% (approx.).

    Explanation:

    According to the scenario, the computation for the given data are as follows:

    First we calculate the current value:

    Current value (CV) = 100,000 * 105.43%

    = 105,430

    Now, Annual coupon (AC) = 100,000 * 3.4%

    = 3,400

    So, we can calculate the yield to maturity by using following formula:

    Yield to maturity = [AC + (Face value - CV) : maturity time] : (Face value + CV) : 2

    By putting the value we get,

    = [ 3,400 + (100,000 - 105,430) : 16] : (100,000 + 105,430) : 2

    = [ 3,060.625] : (102,715)

    = 2.98% (Approx)
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