Watters Umbrella Corp. issued 15-year bonds 2 years ago at a coupon rate of 8.2 percent. The bonds make semiannual payments. If these bonds currently sell for 85 percent of par value, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

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4 August, 08:52

Watters Umbrella Corp. issued 15-year bonds 2 years ago at a coupon rate of 8.2 percent. The bonds make semiannual payments. If these bonds currently sell for 85 percent of par value, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

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Arjun · Answer 1

Answer: 10.32%

Explanation:

Given the following:

Assume par value of $1000

Payment is made semianually

Payment per period (PMT) = 85% of par value = [ (8.2/100) * 1000] : 2 = 82 / 2 = $41

Present value (PV) = 85% * 100 = $850

Years to maturity = (15 - 2) = 13 years

Therefore, number of periods = 13 * 2 = 26 (since payment is made semianually).

In other to avoid computational complexity, we can use the online yield to maturity calculator or the excel formula:

Using the online calculator:

Yield to maturity = 10.32%