Heginbotham Corp. issued 10-year bonds two years ago at a coupon rate of 7.2 percent. The bonds make semiannual payments. If these bonds currently sell for 102 percent of par value, what is the YTM?

Heginbotham Corp. issued 10-year bonds two years ago at a coupon rate of 7.2 percent. The bonds make semiannual payments. If these bonds currently sell for 102 percent of par value, what is the YTM? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

YTM

%

 

Explanation:

Here we are finding the YTM of a semiannual coupon bond. The bond price equation is:

P = $1,020 = $36.00(PVIFAR%,16) + $1,000(PVIFR%,16)

Since we cannot solve the equation directly for R, using a spreadsheet, a financial calculator, or trial and error, we find:

R = 3.435%

Since the coupon payments are semiannual, this is the semiannual interest rate. The YTM is the APR of the bond, so:

YTM = 2 × 3.435%

YTM = 6.87%

Calculator Solution:

Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.

Enter

16

±$1,020

$72 / 2

$1,000

N

I/Y

PV

PMT

FV

Solve for

3.435%

3.435% × 2 = 6.87%