PowerTech Co. has issued bonds with a fifteen-year maturity that are paying a coupon of 5%. Rates have risen since this issuing, so the bond is selling at a discounted price of $940. The bond is five years old. What is the Yield to Maturity?
PowerTech Co. has issued bonds with a fifteen-year maturity that are paying a coupon of 5%. Rates have risen since this issuing, so the bond is selling at a discounted price of $940. The bond is five years old. What is the Yield to Maturity?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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PowerTech Co. has issued bonds with a fifteen-year maturity that are paying a coupon of 5%. Rates have risen since this issuing, so the bond is selling at a discounted price of $940. The bond is five years old. What is the Yield to Maturity?
5.80%
2.90%
2.80%
5.60%
Expert Solution
Step 1
Yield to Maturity = Coupon Payment +( Face Value - Market Price)/Years to Maturity/Face Value + Market Price/2
Given
Coupon Payment = $1,000 x 5% = $50
Face Value = $1,000
Market Price = $940
Years to Maturity = 15 Years - 5 Years = 10 Years
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