Soprano’s Spaghetti Factory issued 22-year bonds two years ago at a coupon rate

Question

Soprano’s Spaghetti Factory issued 22-year bonds two years ago at a coupon rate of 7.20 percent. If these bonds currently sell for 89.15 percent of par value, what is the YTM? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Soprano’s Spaghetti Factory issued 22-year bonds two years ago at a coupon rate of 7.20 percent. If these bonds currently sell for 89.15 percent of par value, what is the YTM? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

Answer :-

Let Face value (F) = 100

Bond selling price (P) = 100 * 89.15%

= 89.15

Coupon rate (C) = 7.2%

Coupon value = 100 * 7.2%

= 7.2

Years to mauturity (n) = 2 years

YTM = [C + {(F - P)/n}] / (F + P) / 2

= [7.2 + {(100 - 89.15)/2}] / (100 + 89.15) / 2

= [7.2 + {(10.85)/2}] / (189.15)/2

= [7.2 + 5.425}] / 94.575

= 12.625 / 94.575

= .13349

= 13.35%

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