Question

A perpetual bond with a par value of $1,000 and a coupon rate of 7.75% has a current market price of $900. What is its yield to maturity

a. 9.32%
b. 8.33%
c. 7.92%
d. 9.45%
e. 8.61%

Answer 1

Answer: e. 8.61%

Explanation:

This is a perpetual bond so the price is calculable by;

Price = Coupon / Yield to Maturity

Coupon = 7.75% * 1,000

= $77.50

900 = 77.50/ YTM

900 * YTM = 77.50

YTM = 77.50/900

= 8.61%