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Wilson Wonders's bonds have 12 years remaining to maturity. Interest is paid annu- ally, the bonds have a S1,000 par value, and the coupon interest rate is 10%. The Yield to Maturtty for Annual Payments bonds sell at a price of S850. What is their yield to maturity?

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jepessoa

Answer:

approximate YTM = 12.16%.

Explanation:

the approximate yield to maturity = {coupon + [(face value - market value) / n]} / [(face value + market value) / 2]

approximate yield to maturity = {100 + [(1,000 - 850) / 12]} / [(1,000 + 850) / 2] = 112.5 / 925 = 0.1216 = 12.16%

An investor that purchases this bond at $850 can expect to earn a 12.16% return.

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