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# 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?
1
2019-11-12T17:05:37-0500

Data;

Par value/ Face value= $1000 Coupon rate per year=4.6% Coupon rte per semi annual period= "\\frac{4.6\\%} {2}" = 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

"YTM=\\cfrac{C+\\cfrac {(FV-PV)}{t}} {\\cfrac{(FV+PV)} {2}}"

C=Coupon payment

FV= Face value

PV= Present value/ Price

t= No of years takes to maturity

"YTM=\\cfrac{23+\\cfrac {(1000-909.92)}{16}} {\\cfrac{(1000+909.92)} {2}}"

"YTM=0.02998"

"YTM=2.998\\%"

"YTM=0.02998"

"YTM=2.998\\% * 2=5.996\\%"

"YTM=\\boxed{5.996\\%}"

Calculation for Effective Annual Yield

"ENY=\\lparen {1+\\cfrac{r} {n}}\\rparen ^{n} -1"

r= Interest rate

n=Number of payments per year

"ENY=\\lparen {1+\\cfrac{0.023} {2}}\\rparen ^{2} -1"

"ENY=0.0231"

"ENY=2.31\\%"

"ENY=2.31\\% *2= 4.63\\%"

"ENY=\\boxed{4.63\\%}"

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