Question

West Corp. issued 13-year bonds 2 years ago at a coupon rate of 10.4 percent. The bonds make semiannual payments. If these bonds currently sell for 102 percent of par value, what is the YTM? 

Multiple Choice 

10.09% 

12.11% 

11.10% 

9.09% 

5.05%

Answer 1

Answer is 10.09%

Par Value = $1,000

Current Price = 102% * $1,000
Current Price = $1,020

Annual Coupon Rate = 10.40%
Semiannual Coupon Rate = 5.20%
Semiannual Coupon = 5.20% * $1,000
Semiannual Coupon = $52

Time to Maturity = 11 years
Semiannual Period = 22

Let Semiannual YTM be i%

$1,020 = $52 * PVIFA(i%, 22) + $1,000 * PVIF(i%, 22)

Using financial calculator:
N = 22
PV = -1020
PMT = 52
FV = 1000

I = 5.047%

Semiannual YTM = 5.047%

Annual YTM = 2 * 5.047%
Annual YTM = 10.09%