Airborne Airlines Inc. has a $1,000 par value bond outstanding with 25 years to maturity. The bond carries an annual interest payment of $88 and is currently selling for $950. Compute the yield to maturity.

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Airborne Airlines Inc

Finance Nov 24, 2020

Airborne Airlines Inc. has a $1,000 par value bond outstanding with 25 years to maturity. The bond carries an annual interest payment of $88 and is currently selling for $950. Compute the yield to maturity.

Expert Solution

YTM = [ Coupen Amount + ( Face value - Market Price ) / Number of years to maturity ] / [ ( Face value + Market Price ) / 2 ]

= [ 88 + ( 1000 - 950 ) / 25 ] / [ ( 1000 + 950 ) / 2 ]

= [ 88 + 2 ] / 975

= 9.23 % Answer

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