Watters Umbrella Corp. issued 20-year bonds 2 years ago at a coupon rate of 6.4

Question

Watters Umbrella Corp. issued 20-year bonds 2 years ago at a coupon rate of 6.4 percent. The bonds make semiannual payments. If these bonds currently sell for 110 percent of par value, what is the YTM?(Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Watters Umbrella Corp. issued 20-year bonds 2 years ago at a coupon rate of 6.4 percent. The bonds make semiannual payments. If these bonds currently sell for 110 percent of par value, what is the YTM?(Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Nper = 18*2 = 36 (indicates the period)

PV = 1000*110% = 1100 (indicates the price)

FV = 1000 (indicates the face value)

Rate = ? (indicates semi-annual YTM)

PMT = 1000*6.4%*1/2 = 32 (indicates the amount of interest payment)

YTM = Rate(Nper,PMT,PV,FV)*2 = Rate(36,32,-1100,1000)*2 = 5.52%

Answer is 5.52%

Thanks.

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