Facade Securities has an issue of $1,000 par value bonds with 18 years remaining to maturity.The bonds pay 7.7% interest on a semiannual basis.The current market price of the bonds is $1,175.What is the yield-to-maturity of the bonds?

Question

Quizplus · Accepted Answer

The yield-to-maturity (YTM) can be calculated using the bond price formula, considering the semiannual interest payments and the time to maturity. Given the bond's current price ($1,175), par value ($1,000), annual interest rate (7.7% or 0.077), and the number of years to maturity (18), the YTM reflects the interest rate that equates the present value of all future cash flows from the bond (interest payments and the repayment of the principal) to the bond's current price. The correct YTM in this case is 6.09%, which means option A is correct. This calculation typically requires financial calculators or spreadsheet software, as it involves solving for the interest rate in the present value formula, which cannot be easily done by hand due to its complexity.

Facade Securities Has an Issue of $1,000 Par Value Bonds