Harrimon Industries bonds have 5 years left to maturity Inte

Harrimon Industries bonds have 5 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%.

What is the yield to maturity at a current market price of

$838? Round your answer to two decimal places.
   %

$1,215? Round your answer to two decimal places.
   %

Solution

The Approximate Yield to Maturity Formula =[Coupon + ( Face Value - Market Price) / Number of years to maturity] / [( Face Value + Market Price)/2 ] *100

= [$ 100+ ( $ 1,000- $ 838) / 5] /[( $ 1,000+ $ 838 )/2] *100

= 132.40 / 919*100

= 14.40696409%

Note : Coupon = Rate * Face Value

= 10% * $ 1,000

= $ 100

Since this formula gives an approximate value, the financial calculators can be used alternatively.

where,

Par Value = $ 1,000

Market Price = $ 838

Annual rate = 10% and

Maturity in Years = 5 Years

Hence the yield to maturity = 14.81%

Hence the correct answer is 14.81%

-------------

The Approximate Yield to Maturity Formula =[Coupon + ( Face Value - Market Price) / Number of years to maturity] / [( Face Value + Market Price)/2 ] *100

= [$ 100+ ( $ 1,000- $ 1,215 ) / 5] /[( $ 1,000+ $ 1,215 )/2] *100

= 57/ 1,107.50*100

= 5.146726862%

Note : Coupon = Rate * Face Value

= 10% * $ 1,000

= $ 100

Since this formula gives an approximate value, the financial calculators can be used alternatively.

where,

Par Value = $ 1,000

Market Price = $ 1,215

Annual rate = 10% and

Maturity in Years = 5 Years

Hence the yield to maturity = 5.03%

Hence the correct answer is 5.03%