Phillips Equipment has 6,500 bonds bond that pay $64 in interest annually

Finance Dec 05, 2020

Phillips Equipment has 6,500 bonds bond that pay $64 in interest annually. The face value is $1,000 and the current market price is $1,062.50. The bonds mature in 30 years. What is the yield to maturity for these bonds? (round your answer to two decimal places).

Expert Solution

The formula to caluclate yeild to maturity of a Plain Vanilla Bond is

YTM = (I + (F-P)/N)/((F+P)/N)

Where I is the interest amount

F is the face value of the bond

P is the current price of the bond

n is the number of periods

YTM = (64 + (1000-1062.5)/30)/((1000+1062.5)/2)

= (64 + (-2.08333))/1031.25

= 0.06004

or we can say that the yield to maturity is approximately 6%( There can +/- 0.05% )

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