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    Approximate yield to maturity

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    Question to work:
    a.
    Bonds issued by West Motel Chain have a par value of $1000, are selling for #1,100, and have 20 years remaining to maturity. The annual interest payment is 13.5% ($135). Compute the approximate yield to maturity.

    Use formula as follows:
    Approximate yield to maturity (Y') =

    Annual interest payment + (plus)

    (Principal payment - Price of the bond) <<<---numerator]; divided by (another numerator) of number of years to maturity divided by (denominator) 06.(Price of the bond) + 0.4 (Principal payment)

    b. Combine a trail and error approach with interpolation to find a more exact answer for this part b.
    A calculator can be used, but all calculations and explanations can be presented in MS Word instead of MS Excel.

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    Solution Preview

    Please see the attachment.

    Question to work:
    a.
    Bonds issued by West Motel Chain have a par value of $1000, are selling for #1,100, and have 20 years remaining to maturity. The annual interest payment is 13.5% ($135). Compute the approximate yield to maturity.

    Use formula as follows:
    Approximate yeld to maturity (Y') =

    Annual interest payment + (plus)

    (Principal payment - Price of the bond) <<<---numeratior]; divided by (another numerator) of ...

    Solution Summary

    The solution explains how to calculate the approximate yield to maturity on a bond

    $2.19

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