A $20,000, level-coupon Eurobond pays interest annually at the coupon rate of 6% and repays the principal value when it matures in 5 years. If it is currently selling for $18,403, what is its
Yield-to-maturity? Round your answer to the nearest tenth of a percent.

Question

Quizplus · Accepted Answer

Using the financial calculator, we input the following:
N = 5 (since the bond matures in 5 years)
PV = -18,403 (the bond is currently selling at a discount)
PMT = 1,200 (since the annual coupon is 6% of the face value of 20,000)
FV = 20,000 (the face value will be received at maturity)

By calculating and solving for the yield-to-maturity (YTM), we get 8.0% rounded to the nearest tenth of a percent. Therefore, the best choice is C. Using a financial calculator, we can find that the yield-to-maturity is 8.0%. Alternatively, we can solve for the YTM using the following formula:

$18,403 = $1,200(PVIFA i=8%, n=5) + $20,000/(1+i)^5

Solving for i, we get i=8.0%. Therefore, the best choice is C, with a yield-to-maturity of 8.0%.

A $20,000, Level-Coupon Eurobond Pays Interest Annually at the Coupon