Question

May Industries has a bond outstanding that sells for $830. The bond has a coupon rate of 7 percent and 10 years until maturity. What is the yield to maturity of the bond? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Yield to maturity ____

Answer 1

YTM is the rate at which PV of Cash Inflows are equal to PV of Cash Outflows.

Year	CF	PVF @9%	Disc CF	PVF @10%	Disc CF
0	$ -830.00	1.0000	$ -830.00	1.0000	$ -830.00
1	$      70.00	0.9174	$    64.22	0.9091	$    63.64
2	$      70.00	0.8417	$    58.92	0.8264	$    57.85
3	$      70.00	0.7722	$    54.05	0.7513	$    52.59
4	$      70.00	0.7084	$    49.59	0.6830	$    47.81
5	$      70.00	0.6499	$    45.50	0.6209	$    43.46
6	$      70.00	0.5963	$    41.74	0.5645	$    39.51
7	$      70.00	0.5470	$    38.29	0.5132	$    35.92
8	$      70.00	0.5019	$    35.13	0.4665	$    32.66
9	$      70.00	0.4604	$    32.23	0.4241	$    29.69
10	$      70.00	0.4224	$    29.57	0.3855	$    26.99
10	$ 1,000.00	0.4224	$ 422.41	0.3855	$ 385.54
NPV			$    41.65		$   -14.34

YTM = rate at which Least +ve NPV + [ NPV at that rate / Change In NPV due to 1% inc in DIsc rate ] * 1%

= 9% + [ 41.65 / 55.98 ] * 1%

= 9% + 0.74%

= 9.74%

YTM is 9.74%