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Bond Yield to Maturity - Debt Financing

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Tidewater Home Health Cae, Inc. has a bond issue outstanding with eight years remaining to maturity, a coupon rate of 10 percent with interest paid annually, and a par value of $1,000. The current market price of the bond is $1,251.22.
a. What is the bond's yield to maturity?
b. Now, assume that the bond has semiannual coupon payments. What is its yield to maturity in this situation?

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Solution Preview

Please see attached Excel file.

Tidewater Home Health Cae, Inc. has a bond issue outstanding with eight years remaining to maturity, a coupon rate of 10 percent with interest paid annually, and a par value of $1,000. The current market price of the bond is $1,251.22.

a. What is the bond's yield to maturity?

Yield to maturity

Yield to maturity can be calculated using Excel worksheet function RATE

Data
No of years to maturity= 8
Coupon rate= 10.00%
Face (Par) value= $1,000
Frequency ...

Solution Summary

The solution calculates yield to maturity for a bond with annual and semi-annual coupon payments.

$2.19
Similar Posting

bond's price if comparable debt yields

1. A bond has the following terms:
Principal amount $1,000
Semi-annual interest $50
Maturity 10 years

A. What is the bond's price if comparable debt yields 12%?
B. What is the current yields and yields to maturity?
C. What would be the bond's price if interest rates declined to 8%
D. What two generalizations may be drawn from the above price changes? In other words,
Explain the relationship in the above example between interest rates (at 12% vs 8%)
And the price of the bond.

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