The YAX Corporation\'s bonds have 6 years remaining to maturity. Interest is pai

Question

The YAX Corporation's bonds have 6 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%.

A) What is the yield to maturity at a current market price of $803? Round your answer to two decimal places.

B) What is the yield to maturity at a current market price of $1,116? Round your answer to two decimal places.

C) Would you pay $803 for one of these bonds if you thought that the appropriate rate of interest was 12% - that is, if rd = 12%. Explain your answer.

Explanation / Answer

a. Yield To Maturity = Interest+FV-BV/n/ FV+BV/2

= 90+1000-803/6/1000+803/2

= 128.83/901.5 = 14.29%

b. 90+1000-1116/6/1000+1116/2

= 70.66/1058

Yield To Maturity = 6.68%

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