You are analyzing the cost of debt for a firm. You know that the firm’s 14-year
ID: 2735450 • Letter: Y
Question
You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 7.0 percent coupon bonds are selling at a price of $651.10. The bonds pay interest semiannually. If these bonds are the only debt outstanding for the firm, answer the following questions.
(a)
What is the current YTM of the bonds? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)
You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 7.0 percent coupon bonds are selling at a price of $651.10. The bonds pay interest semiannually. If these bonds are the only debt outstanding for the firm, answer the following questions.
Explanation / Answer
use rate formuale in excel to find:
rate(nper,pmt,pv,fv,type,guess)
nper=14*2=28 period(semi annual)
pmt=1000*7%/2=35(semi anuual coupon payment)
pv=-651.1
fv=1000
=RATE(28,35,-651.1,1000,0,1)
=6.14%
for annual YTM it is 6.14%*2=12.28%
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