Your firm has issued a 10-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.

Question

Quizplus · Accepted Answer

Using the financial calculator, input the following:
N=20 (since it's a semiannual bond, 10 years is equivalent to 20 semiannual periods)
PMT=50 (10% coupon rate x $1,000 par value / 2 semiannual periods)
FV=1,000
PV=-975

Then, solve for I/Y (yield to maturity) which equals 10.41%. Therefore, the answer is D.

Your Firm Has Issued a 10-Year $1,000