Abner Corporation's bonds mature in 18 years and pay 8 percent interest annually. If you purchase...
Abner Corporation's bonds mature in 18 years and pay 8 percent interest annually. If you purchase the bonds for $1,050 what is your yield to maturity?
Homework Answers
Yield To Maturity(YTM) = (interest per annum + average other cost per annum) / average fund employed
Average other cost per annum = (Redemption price - Current market price) / life remaining to maturity
= (1000-1050) / 18
= -50/18
= -2.77777777778
Average fund employed = (.4*Redemption price)+ (.6*Current market price)
= (.4*1000)+(.6*1050)
= 400+630
= 1030
Yield To Maturity(YTM) = ((1000*8%)-2.77777777778)/1030
= 77.2222222222/1030
= 7.49%
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