Adams Enterprises' noncallable bonds currently sell for $1,480. They have a 15-year maturity, an annual coupon of $85, and a par value of $1,000. What is their yield to maturity

YTM = 4.27%

Explanation:

to calculate yield to maturity we can use the following formula:

YTM = [C + (F - P) / n] / [ (F + P) / 2]

coupon = $85 n = 15 F = $1,000 P = $1,480

YTM = [$85 + ($1,000 - $1,480) / 15] / [ ($1,000 + $1,480) / 2]

YTM = ($85 - $32) / $,1240

YTM = $53 / $,1240 = 0.0427 ≈ 4.27%

Yield to maturity is 8.2%

Explanation:

Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity.

Face value = F = $1,000

Coupon payment = $85

Selling price = P = $1,480

Number of payment = n = 15 years

Using formula for yield to maturity

Yield to maturity = [ C + (F - P) / n ] / [ (F + P) / 2 ]

Yield to maturity = [ $85 + ($1,000 - $1,480) / 15 ] / [ (1,000 + $1,480) / 2 ]

Yield to maturity = [ $70 + 32 ] / $1,240 = $102 / $1,240 = 0.082 = 8.2%