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 is $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) 10.00%

Question

Quizplus · Accepted Answer

Using the financial calculator, with N=40 (20 years x 2 semiannual periods per year), PV=-975, PMT=50 (10% coupon rate/2), and FV=1000, we get an interest rate of 5.15% per semiannual period. Multiplying by 2 to get the annual rate, we get 10.30%. Therefore, the correct answer is C.

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