Your firm has issued a 20-year $1,000.00 par value semiannual 10% coupon bond that sells for $1,000 in the market place.The proceeds from the sale of the bond issue are $975.00 per bond.What is your firm's yield to maturity on this new bond issue? Use a financial calculator to determine your answer.
A)5.15%
B)10.16%
C)10.30%
D)10.41%

Question

Quizplus · Accepted Answer

Using a financial calculator and inputting the following:
N=20*2=40 (since semiannual payments)
I/Y=5.15 (Guessed, adjusted to achieve a present value of $975)
PMT=50 (10% coupon rate, semiannual payments)
FV=1000
Solving for PV gives a result of $975. Therefore, the yield to maturity is 10.30%.

Your Firm Has Issued a 20-Year $1,000