Adams Enterprises' noncallable bonds currently sell for $1,480.They have a 15-year maturity,an annual coupon of $85,and a par value of $1,000.What is their yield to maturity?

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) can be calculated using the following formula:
PV = (C/r)[1 - 1/(1+r)^n] + FV/(1+r)^n
where PV = present value of the bond, C = coupon payment, r = yield to maturity, n = number of years to maturity, and FV = face value (or par value) of the bond.

Plugging in the given values:
PV = $1,480
C = $85
FV = $1,000
n = 15

We need to solve for r. This can be done through trial and error or using a financial calculator. Using a financial calculator,
N = 15
I/Y = ?
PV = -1480
PMT = 85
FV = 1000

We get I/Y = 4.14%

Therefore, the yield to maturity is B) 4.14%.

Adams Enterprises' Noncallable Bonds Currently Sell for $1,480