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7 August, 16:44

Pelzer Printing Inc. has bonds outstanding with 10 years left to maturity. The bonds have a 9% annual coupon rate and were issued 1 year ago at their par value of $1,000. However, due to changes in interest rates, the bond's market price has fallen to $950.70. The capital gains yield last year was - 4.93%. What is the yield to maturity

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  1. 7 August, 18:43
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    The answer is 9.85%

    Explanation:

    The number of periods N = 9years (10 years minus 1 year ago)

    Yield to Maturity (I/Y) = ?

    Present value of the bond (PV) = $950.70

    Future value of the bond (FV) = $1,000

    Annual payment (PMT) = $90 (9% x $1,000)

    Using a financial calculator to solve the problem (BA II plus Texas instruments):

    Yield to Maturity (I/Y) = 9.85%
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