The Pioneer Petroleum Corporation has a bond outstanding with an $80 annual inte

Question

The Pioneer Petroleum Corporation has a bond outstanding with an $80 annual interest payment, a market price of $900, and a maturity date in four years. Assume the par value of the bond is $1,000. Find the following: (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)

-Coupon rate

-Current Yield

-Approximate yield to maturity

-Exact yield to maturity

Explanation / Answer

Coupon rate = Coupon/ Par Value = 80/1000 = 8%
Current Yield = Coupon/Market Price = 80/900 = 8.89%

Approxmate YTM formula = (Coupon + ( Face Value - Price)/n)/((Coupon + Face Value)/2 =
(80 + (1000 -900)/4)/(1000+900)/2 =( 80 + 25)/950= 11.05%

Exact YTM using Excel Rte fomula = RATE(4,80,-900,1000) = 11.24%

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