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 10-year maturity, but they can be called in 5 years at $1,125. What is their yield to maturity (YTM)?

Answer 1

Answer:

8.8%

Explanation:

The fomula to calculate the yield to maturity is:

YTM= (C+((FV-PV)/t))/((FV+PV)/2)

C= Coupon

FV= Face value

PV= Present value

t= time to reach maturity

YTM= (100+((1,000-1,080)/10))/((1,000+1,080)/2)

YTM= (100+(-8))/1,040

YTM= 92/1,040

YTM= 0,088* 100= 8.8%

Their yield to maturity (YTM) is 8.8%