Answer to Question #98032 in Finance for Amanda

Question #98032
Wildhorse, Inc., has bonds outstanding that will mature in 8 years. The bonds have a face value of $1,000. These bonds pay interest semiannually and have a coupon rate of 4.6 percent. If the bonds are currently selling at $909.92, what is the yield to maturity that an investor who buys them today can expect to earn? What is the effective annual yield?
Expert's answer


Par value/ Face value= $1000

Coupon rate per year=4.6%

Coupon rte per semi annual period= = 2.30%

Coupon payment= 0.023*1000=$23

Current price/ Present value=$909.92

Time= 8 years

Semi annual periods= 8*2=16

Calculation yield To Maturity

C=Coupon payment

FV= Face value

PV= Present value/ Price

t= No of years takes to maturity

Calculation for Effective Annual Yield

r= Interest rate

n=Number of payments per year

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