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

$844? Round your answer to two decimal places.
   %

$1,168? 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- $ 844 ) / 5] /[( $ 1,000+ $ 844)/2] *100

= 131.20 / 922*100

= 14.22993492%

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 = $ 844

Annual rate = 10% and

Maturity in Years = 5 Years

Hence the yield to maturity = 14.61%

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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- $1168) / 5] /[( $ 1,000+ $ 1168 )/2] *100

= 66.4/ 1084*100

= 6.125461255%

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

where,

Par Value = $ 1,000

Market Price = $ 1168

Annual rate = 10% and

Maturity in Years = 5 Years

Hence the yield to maturity = 6.01%