question archive Eight years ago, Camerson and Co
Eight years ago, Camerson and Co
Subject:FinancePrice:3.87 Bought7
Eight years ago, Camerson and Co. issued 25-year coupon bonds. The yield to maturity at the time of issuance was 8 percent and the bonds sold at 110% of par value. The bonds are currently selling at par value. What is the current yield to maturity for these bonds? [Assume that the coupon is paid annually]. (Round your answer to 2 decimal places and record as a percent but without a percent sign. For example, record 18.3893 6.45 % as 18.39).
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Answer:
| Let the Face Value of Bond be $1000 |
| Price of Bond = [C [1 - (1+r)^-t] / r] + [F / (1+r)^t] |
| C - Coupon Payment |
| r - YTM |
| F - Face Value |
| t - Years |
| Price = [C * [1 - (1.08^-25)/0.08] + [1000 / 1.08^25] |
| 1100 = 10.67478C + 146.01790 |
| or, 10.67478C = 953.9821 |
| or, C = 89.37 |
| Coupon Rate = 8.94% |
| When Price of Bond is equal to par value, then coupon rate is the YTM |
