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Barry Cuda is considering the purchase of the following Builtrite bond: $1000 par, 3 1/4% coupon rate, 10 year maturity that is currently selling for $940. If Barry purchases this bond, what would his approximate yield to maturity be?

Respuesta :

Kolawole845

Answer:

Yield to Maturity = 3.97%

Explanation:

The yield to maturity is the discount rate that equates the price of the bond to the present value of its future cash flow receivable from it.

The yield on the bond can be determined as follows using the formula below:  

YM = C + F-P/n) ÷ 1/2 (F+P)  

YM-Yield to maturity-  

C- annual coupon  

F- Face Value  

P- Current Price  

DATA  

Coupon = coupon rate × Nominal value = 1,000 × 3 1/4%=  32.5

Face Value = 1000

YM-?, C- 32.5, Face Value - 1,000, P-940  

YM = (32.5+ (1000-940)/10) ÷ ( 1/2× (1000 + 940) )  

YM = 0.0397 × 100 =  3.97%

Yield to Maturity = 3.97%