Question

Bonds issued by the Coleman Manufacturing Company have a par value of $1,000, which of
course is also the amount of principal to be paid at maturity. The bonds are currently selling for
$690. They have 10 years remaining to maturity. The annual interest payment is 13 percent ($130).
Compute the approximate yield to maturity.​

Answer 1

Answer:

19.05%

Explanation:

the approximate yield to maturity (YTM) formula is:

approximate YTM = {C + [(FV - PV) / n]} /  [(FV + PV) / 2]

• C = coupon payment = $130
• FV = face value or value at maturity = $1,000
• PV = present value or current market value = $690
• n = 10 years

approximate YTM = {$130 + [($1,000 - $690) / 10]} /  [($1,000 + $690) / 2] = ($130 + $31) / $845 = $161 / $845 = 0.1905 or 19.05%