Question

Dyl Inc.'s bonds currently sell for $1,040 and have a par value of $1,000. They pay a $65 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100. What is their yield to maturity (YTM)?

Answer 1

Answer:

Their yield to maturity (YTM) is 6.11%

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

Coupon payment = $65

Selling price = P = $1,040

Number of periods = n = 15 years

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

Yield to maturity = [ $65 + ( $1,000 - $1,040 ) / 15 ] / [ ( 1,000 + $1,040 ) / 2 ]

Yield to maturity = [ $65 - 2.67 ] / $1,020 = $62.33 / $1,020 = 0.0611 = 6.11%

Answer 2

The yield to maturity when the bonds currently sell for $1,040 is 6.09%.

Calculation of the yield to maturity;

Since

Face value = F = $1,000

Coupon payment = $65

Selling price = P = $1,040

Number of periods = n = 15 years

Now

The following formula should be used.

=RATE(NPER,PMT,PV,FV,TYPE)

=RATE(15,65,1040,1000,0)

Hence, we can conclude that The yield to maturity when the bonds currently sell for $1,040 is 6.09%.

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