Eastern Corporation has $1,000 par value bonds with 4 years to maturity

Finance Dec 22, 2020

Eastern Corporation has $1,000 par value bonds with 4 years to maturity. The bonds pay an 8% coupon rate with semi-annual coupon interest payments. The bond's closing price is quoted at 102.25. Suppose you purchase the bond for the closing price. What is the bond's yield to maturity?

Expert Solution

Number of periods = 4 * 2 = 8

Semi annual coupon = [(8 / 100) * 1000] / 2 = 40

Price = (102.25 / 100) * 1000 = $1,022.5

Yield to maturity = 7.34%

Keys to use in a financial calculator:

2nd P/Y 2

FV 1000

PV -1022.5

PMT 40

N 8

CPT I/Y

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