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Homework answers / question archive / My company has a bond outstanding with a par value of $1000, an annual interest payment of $110, a market price of $1200 and a maturity in 10 years
My company has a bond outstanding with a par value of $1000, an annual interest payment of $110, a market price of $1200 and a maturity in 10 years. Determine the following:
a. Coupon rate
b. Current yield
c. Approximate yield to maturity
a. Coupon rate
Coupon rate = Annual interest payment/Par value
= 110/1,000
= 11.00%
b. Current yield
Current yield = Annual interest payment/Market price
= 110/1,200
= 9.17%
c. Approximate yield to maturity
We need to calculate how much the bonds have been issued by using the formula as follows: -
where B is the issued price
C is the coupon payment
r is the discount or yield rate
n is the period
Then, we can replace the information into the equation.
The yield to maturity of the bond is equal to
1200 = 110 x [1 - 1 ] + 1,000
(1 + r)10 (1 + r)10
r
r = 8.02%
You could substitute values for rate until you find a value that works. Alternatively, you can use bond calculator to help you figuring out the yield to maturity.
please see the attached file.