Preston Corporation has a bond outstanding with an annual interest payment of $8
ID: 2479899 • Letter: P
Question
Preston Corporation has a bond outstanding with an annual interest payment of $80, a market price of $1,250, and a maturity date in 10 years. Assume the par value of the bond is $1,000. Find the following: (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) a. Coupon rate % b. Current yield % c-1. Approximate yield to maturity % c-2. Exact yield to maturity %
Explanation / Answer
a Coupon Rate Interest/ Face Value 80/1000 8% b Current Yield Cash Flow/ Bond price 80/1250 Current Yield 6.40% c YTM Coupon+ FV-BV/n//FV+BV/2 Fv = Face Value BV= Bond Price n = Years to Maturity YTM = 80+(1000-1250)/10//(1000+1250)/2 80-25//1125/2 55/1125 4.49% The Yield to Maturity is 4.889% or 4.49%
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