Five Rivers Casino is undergoing a major expansion.The expansion will be financed by issuing new 15-year,$1,000 par,9% annual coupon bonds.The market price of the bonds is $1,070 each.Five Rivers flotation expense on the new bonds will be $50 per bond.Five Rivers marginal tax rate is 35%.What is the yield to maturity on the newly-issued bonds?

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) is calculated using the bond's current market price, coupon rate, par value, and time to maturity. The YTM is the interest rate that equates the present value of the bond's future cash flows to its current market price. Given the bond's market price of $1,070, a coupon rate of 9%, and a 15-year maturity, the YTM is approximately 8.17%.

Five Rivers Casino Is Undergoing a Major Expansion