atters Umbrella Corp. issued 20-year bonds 2 years ago at a coupon rate of 5.4 p

Question

atters Umbrella Corp. issued 20-year bonds 2 years ago at a coupon rate of 5.4 percent. The bonds mak miannual payments. If these bonds currently sell for 85 percent of par value, what is the YTM? (Do n und intermediate calculations and enter your answer as a percent rounded g., 32.16.) 6.86 ± 196 % Explanation: Here we are finding the YTM of a semiannual coupon bond. The bond price equation is: P = $850 = S27(PVIFAR%.36) + $1,000(PVFR%36) Since we cannot solve the equation directly for R, using a spreadsheet, a financial calculator, or trial and error, we find: R 3.432% Since the coupon payments are semiannual, this is the semiannual interest rate. The YTM is the APR of the bond, so: YTM = 2 3.432% YTM 6.86% Calculator Solution Note: Intermediate answers are shown below as rounded, but the full answer was used to complete

Explanation / Answer

N is the total number of interest payments

since 20 year bond is issued 2 years ago only interest payments for 18 years is pending and interest is paid semi annually hence total number of payments= 18*2= 36

PMT = 85% of face value of bond= 1000*85%= 850

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