Douglas Dynamics Inc.has outstanding $1,000 face value 12% coupon bonds that make semiannual payments,and have 8 years remaining to maturity.If the current price for these bonds is $1,274.35,what is the annualized yield to maturity?

Question

Quizplus · Accepted Answer

Using the financial calculator, we can find the annualized yield to maturity (YTM) by inputting the following information:

N = 16 (8 years remaining to maturity, semiannual payments = 2 payments per year x 8 years)
I/Y = ?
PV = -1,274.35 
PMT = 60 (12% coupon rate x $1,000 face value / 2 semiannual payments)
FV = 1,000 (face value at maturity)

Solving for I/Y, we get an annualized yield to maturity of 7.40%. Therefore, the best choice is B.