Stone Sour Corp. issued 20-year bonds 7 years ago at a coupon rate of 7.60 perce

Question

Stone Sour Corp. issued 20-year bonds 7 years ago at a coupon rate of 7.60 percent. The bonds make semiannual payments. If these bonds currently sell for 106 percent of par value, what is the YTM? (Round your answer to 2 decimal places. (e.g., 32.16))

Stone Sour Corp. issued 20-year bonds 7 years ago at a coupon rate of 7.60 percent. The bonds make semiannual payments. If these bonds currently sell for 106 percent of par value, what is the YTM? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Compute the YTM of the bond.

Current price of the bond = 106

Face value = 100

Coupon rate = 7.6% of 100 = $7.6

Approximate YTM = (Coupon rate+((100-106)/13)) / (100+106)/2

                              = (7.6+((-6/13)) / (206/2)

                              = (7.6-0.4615) / 103

                              = 7.13846 / 103

                              = 0.0693 or 6.93%

Therefore, YTM = 6.93%.

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