# yield to maturity

1. Ginko Inc. has bonds outstanding that mature in 20 years. The bonds have $1000 par value, pay interest annually at a rate of 10 percent, and have a current selling price of $875.25. What is the yield to maturity?

2. A share of common stock just paid a dividend of $3.25 per share. The expected long-run growth rate for this stock is 18%. If investors require a rate of return of 24%, what should the price of the stock be?

3. Vertex bonds have a maturity value of $1000. The bonds carry a coupon rate of 14 percent. Interest is paid semi-annually. The bonds will mature in seven years. If the current market price is $1092.65, what is the yield to maturity on the bond?

4. Bangor Company's common stock paid a dividend last year of $3.70. You believe that the long-term growth in the dividends of the firm will be 8 percent per year. If your required return for Bangor is 14 percent, how much are you willing to pay for the stock?

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#### Solution Preview

1. Ginko Inc. has bonds outstanding that mature in 20 years. The bonds have $1000 par value, pay interest annually at a rate of 10 percent, and have a current selling price of $875.25. What is the yield to maturity?

From the TI BA II Plus calculator, we press

N = 20

FV = 1000

PV = - 875.25

PMT = 1000*10% = 100

Then compute CPT:

I/Y = 11.632%

2. A share of common stock just paid a dividend of ...

#### Solution Summary

What is the yield to maturity?

Current Yield, Yield to Maturity & Effective Annual Yield

The 7 percent coupon bonds of Firm X are selling for 102 percent of par value. The bonds mature in 6 years and pay interest semiannually.

What is the current yield, yield to maturity and effective annual yield?

1. 6.86; 6.59; 6.70

2. 6.86; 6.23; 6.53

3. 6.37; 6.23; 6.53

4. 6.37; 6.59; 6.86

5. 6.59; 6.65; 6.70

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