Dry Seal plans to issue bonds to expand operations.The bonds will have a par value of $1,000,a 10-year maturity,and a coupon interest rate of 9%,paid semiannually.Current market conditions are such that the bonds will be sold to net $937.79.What is the yield-to-maturity of these bonds?

Question

Quizplus · Accepted Answer

Using a financial calculator or Excel, we can calculate the yield-to-maturity (YTM) of these bonds as follows:
N = 20 (10 years x 2 semiannual periods)
PMT = $45 (9% of $1,000 divided by 2)
PV = -$937.79
FV = $1,000
Solving for I/Y, we get 4.99% (rounded to two decimal places). Since this is a semiannual rate, we need to double it to get the annual yield, which is 9.98% (rounded to two decimal places).
Therefore, the closest answer choice is B, which is 10%.

Dry Seal Plans to Issue Bonds to Expand Operations