Johan Drinks has a 6% bond outstanding that sells for $1,058.45. It has a $1,000 face value. It will mature in exactly 7...
Johan Drinks has a 6% bond outstanding that sells for $1,058.45. It has a $1,000 face value. It will mature in exactly 7 years and pays interest semi-annually. What is the bond's yield-to-maturity?
Homework Answers
Information provided:
Par value= future value= $1,000
Coupon rate= 6%/2= 3%
Coupon payment= 0.03*1,000= $30
Time= 7 years*2= 14 semi-annual periods
Current price= present value= $1,058.45
The yield to maturity is computed by entering the below in a financial calculator:
FV= 1,000
PV= -1,058.45
PMT= 30
N= 14
Press the CPT key and I/Y to compute the yield to maturity.
The value obtained is 2.50
Therefore, the bond’s yield to maturity is 2.50%*2= 5.00%.
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