Question

Please help me find the correct one for Yield of maturity! With steps will be helpful! Thank you!

Your answer is partially correct. Try again. Electrolex, Inc., has four-year bonds outstanding that pay a coupon rate of 7.29 percent and make coupon payments semiannually. If these bonds are currently selling at $914.89 What is the yield to maturity that an investor can expect to earn on these bonds? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, eg, 15.25%.) Yield to maturity What is the effective annual yield? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, eg. 15.25%.) Effective annual yield 9.94% 10.191%

Answer 1

Number of years left to maturity (n) = 4 years *2 = 8 semi annual periods

Coupon rate = 7.29%

Selling price of Bond = $914.89

Face value = $1000

Semi annual coupon amount = Face value*Coupon rate*1/2 = $1000*7.29%*1/2 = $36.45

Calculation of Yield to maturity:

Yield to maturity = [Semi annual coupon amount + (Face value - Selling price of Bond)/n] / (Selling price of Bond + Face value)/2

= [$36.45 + ($1000 - $914.89)/8] / ($914.89 + $1000)/2

= [$36.45 + $10.64] / $957.445 = $47.09 / $957.445 = 0.049182 i.e. 4.9182%

Yield to maturity on Bonds = 4.9182%*2 = 9.8364% i.e. 9.84%