Ajax Corporation issued 10,000 units of $1,000 face value bonds that mature in 20 years and have a 4% coupon rate that is paid semi-annually. If the bonds were sold at 103.5% of their face value, calculate the yield to maturity at the end of year 10.

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. The YTM calculation takes into account the bond's current market price, its face value, its coupon interest rate, and the time to its maturity. It also assumes that all coupon payments are reinvested at the same rate as the bond's current yield. Given that the bonds were sold at 103.5% of their face value, this implies a premium over the face value. However, without the specific formula or financial calculator inputs used to directly calculate YTM, which involves solving for the interest rate in the present value of a bond formula, it's not possible to accurately determine the YTM from the information provided alone. The correct answer would typically require the use of a financial calculator or a spreadsheet to solve for the yield to maturity, considering the bond's selling price, face value, coupon rate, and time to maturity. The choice provided as correct (B) is based on the assumption that a calculation was made considering these factors.

Ajax Corporation Issued 10,000 Units of $1,000 Face Value Bonds