Ashburn Corporation issued 25-year bonds two years ago at a coupon rate of 5.6 percent. The bonds make semiannual payments. If these bonds currently sell for 97 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.) YTM %
Ashburn Corporation issued 25-year bonds two years ago at a coupon rate of 5.6 percent. The bonds make semiannual payments. If these bonds currently sell for 97 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.) YTM %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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![### Calculating Yield to Maturity (YTM) for Ashburn Corporation Bonds
Ashburn Corporation issued 25-year bonds two years ago at a coupon rate of 5.6 percent. The bonds make semiannual payments. If these bonds currently sell for 97 percent of par value, what is the YTM?
**Instructions:**
- **Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.**
**Input Section:**
- An input box is provided for the YTM percentage value.
Below is an interactive component where users can enter their calculated YTM.
*YTM:* `[________] %`
### Explanation of YTM Calculation
The YTM, or Yield to Maturity, is the total return expected on a bond if the bond is held until maturity. It considers the bond's current market price, its par value, coupon interest rate, and time to maturity. It is a crucial concept in bond investments, helping investors compare bonds with different prices and maturities.
Steps to calculate YTM:
1. **Determine the bond's annual coupon payment:**
- Multiply the par value of the bond by the coupon rate.
2. **Identify the number of periods:**
- Since the bonds make semiannual payments, double the number of years remaining until maturity.
3. **Find the present value of the bond's cash flows:**
- The bond’s market price is given as a percentage of its par value.
4. **Calculate YTM using a financial calculator or iterative methods:**
- This is done by finding the rate that equates the present value of the bond's expected cash flows to its current price.
This method involves some complex calculations, often requiring the use of financial calculators or specialized software for precise results.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0505985e-243e-4b9e-b7a6-bbe3450b2962%2F36466c84-521e-4be7-84e9-17b74865bbda%2Fmwp1sxu_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Calculating Yield to Maturity (YTM) for Ashburn Corporation Bonds
Ashburn Corporation issued 25-year bonds two years ago at a coupon rate of 5.6 percent. The bonds make semiannual payments. If these bonds currently sell for 97 percent of par value, what is the YTM?
**Instructions:**
- **Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.**
**Input Section:**
- An input box is provided for the YTM percentage value.
Below is an interactive component where users can enter their calculated YTM.
*YTM:* `[________] %`
### Explanation of YTM Calculation
The YTM, or Yield to Maturity, is the total return expected on a bond if the bond is held until maturity. It considers the bond's current market price, its par value, coupon interest rate, and time to maturity. It is a crucial concept in bond investments, helping investors compare bonds with different prices and maturities.
Steps to calculate YTM:
1. **Determine the bond's annual coupon payment:**
- Multiply the par value of the bond by the coupon rate.
2. **Identify the number of periods:**
- Since the bonds make semiannual payments, double the number of years remaining until maturity.
3. **Find the present value of the bond's cash flows:**
- The bond’s market price is given as a percentage of its par value.
4. **Calculate YTM using a financial calculator or iterative methods:**
- This is done by finding the rate that equates the present value of the bond's expected cash flows to its current price.
This method involves some complex calculations, often requiring the use of financial calculators or specialized software for precise results.
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