Gabriel Corporation has outstanding $1,000, 8% semi-annual coupon bonds. The bonds have fourteen years remaining to maturity. If the current price for these bonds is $1,118.74, what is the
Annualized yield to maturity?

Question

Quizplus · Accepted Answer

First, we need to calculate the semi-annual coupon payment. The bond has an $1,000 face value and an 8% coupon rate, which means the coupon payment is $1,000 x 8% / 2 = $40.

Next, we can use the present value formula to calculate the bond's price:

$1,118.74 = ($40 / (1 + r/2)^28) + ($1,000 / (1 + r/2)^28)

where r is the semi-annual yield to maturity.

Using a financial calculator or Excel, we can solve for r to get a semi-annual yield of 3.34%.

Finally, we annualize the semi-annual yield by multiplying it by 2:

Annualized yield = 2 x 3.34% = 6.68%

Therefore, the answer is choice A) 6.68%.

Gabriel Corporation Has Outstanding $1,000, 8% Semi-Annual Coupon Bonds