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Previous Page Next Page Page 17 of 25 Question 17 (4 points) Mann Products has a bond outstanding with 12 years remaining to maturity, a coupon rate of 9 percent paid annually, and a par value of $1,000. If the current market price is $814, what is the yield to maturity? 15% 13% 12% 14% 16% Previous Page Next Page Page 17 of 25 Submit Quiz 16 of 25 questions saved

Answer 1

Yield to maturity of a bond can be computed using excel as IRR of cash out flow and inflow during the periods and maturity.

Year 0 cash out flow is the price of bond i.e. $ 814

Cash flow in year 1 through 11 is the coupon amount.

Coupon amount = Face value x Coupon rate/Coupon payment frequency in a year

                          = $ 1,000 x 0.09/1 = $ 90

Computations of IRR using excel:

	A	B
1	Year	Cash Flow
2	0	($ 814)
3	1	$ 90
4	2	$ 90
5	3	$ 90
6	4	$ 90
7	5	$ 90
8	6	$ 90
9	7	$ 90
10	8	$ 90
11	9	$ 90
12	10	$ 90
13	11	$ 90
14	12	$ 1,090
15	IRR	12.00%

If excel sheet looks like above table,

Insert formula “=IRR(B2:B14)” in cell B15 to get IRR as 12 %.

Yield to maturity of bond is 12 %

Hence option “12 %” is correct answer.