Night Hawk Co. issued 17-year bonds two years ago at a coupon rate of 10.1 perce

Question

Night Hawk Co. issued 17-year bonds two years ago at a coupon rate of 10.1 percent. The bonds make semiannual payments.

If these bonds currently sell for 97 percent of par value, what is the YTM? (Do not include the percent sign (%). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

If these bonds currently sell for 97 percent of par value, what is the YTM? (Do not include the percent sign (%). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Years to maturity remaining = 17-2 = 15

semiannual months = 15 *2= 30

semiannual interest = 1000 * .101 *6/ 12

                               = 50.50

current price = 1000 *.97 = 970

YTM =[Interest +(face value -current price)/years ] /[(face value+ price)/2]

       = [50.5 + (1000 -970 )/ 30 ] /[(1000+970)/2]

       = [50.5 + (30/ 30) ] / [1970/2]

      = [50.5 + 1 ] /985

     = 51.5 / 985

    = .05228 or 5.23% semiannually or 10.46% annuall y   [5.23*2]

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