Question

Sommers Co.'s bonds currently sell for $1,080 and have a par value of $1,000. They pay a $100 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,125. What is their yield to maturity (YTM)?

a. 8.56%
b. 9.01%
c. 9.46%
d. 9.93%
e. 10.43%

Answer 1

Answer:

b. 9.01%

Explanation:

In this question, we use the Rate formula which is shown in the spreadsheet.  

The NPER represents the time period.  

Given that,  

Present value = $1,080

Future value or Face value = $1,000  

PMT = 100

NPER = 15 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after solving this, the yield to maturity is 9.01%