Question

Radoski Corporation's bonds make an annual coupon interest payment of 7.35%. The bonds have a par value of $1,000, a current price of $1,130, and mature in 12 years. What is the yield to maturity on these bonds? 5.52% 5.82% 6.11% 6.41% 6.73%

Answer 1

Answer:

5.82%

Explanation:

Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity.

Face value = F = $1,000

Assuming Coupon payments are made annually

Coupon payment = $1,000 x 7.35% = $73.5

Selling price = P = $1,130

Number of payment = n = 12 years

Yield to maturity = [ C + ( F - P ) / n ] / [ (F + P ) / 2 ]

Yield to maturity = [ $73.5 + ( $1,000 - $1,130 ) / 12 ] / [ ( $1,000 + $1,130 ) / 2 ]

Yield to maturity = [ $73.5 - 10.83 ] / $1,065 = $62.67 /1,065 = 0.0588 = 5.88%