Cinqua Terra Incorporated issued 10-year bonds three years ago with a coupon rat

Question

Cinqua Terra Incorporated issued 10-year bonds three years ago with a coupon rate of 7.25% APR. The bonds pay semi-annual coupons, have a face value of $1,000 each and were issued at par value. Cinqua Terra bonds currently trade at $1,099.00. Given your answer to the 6-month return, what is the yield to maturity (as an EAR) for holding the bond? Answer Format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924) Enter Answer Here...

Explanation / Answer

1.

PV=-1099

N=7

PMT=3.625%*1000

FV=1000

CPT I/Y=2.09%

Hence, semi-annual APR=4.18%

EAR=(1+4.18%/2)^2-1=4.2236%

2.

N=7

PMT=3.75%*1000

FV=1000

PV=-1101

CPT I/Y=2.1785%

Hence, semi-annual APR=4.357%

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