Business, 03.01.2020 23:31 amberpublow7

Otto enterprises has a bond issue outstanding with a coupon of 8 percent that matures in 15 years. the bond is currently priced at $923.60 and has a par value of $1,000. interest is paid semiannually. what is the yield to maturity? a. 8.67%b. 9.93%c. 9.16%d. 8.93%e. 8.45%

Answers: 1

Show answers

Answers

Answer from: poonwagon994

Year Cashflow [email protected]% PV [email protected]% PV

$ $ $

0 (923.60) 1 (923.60) 1 (923.60)

1-15 80 9.1079 728.63 8.0607 644.86

15 1,000 0.3624 362.40 0.2745 274.50

NPV 167.43 NPV (4.24)

Kd = LR + NPV1/NPV1+NPV2 x (HR – LR)

Kd = 7 + 167.43/167.43 + 4.24 x (9 – 7)

Kd = 7 + 167.43/171.67 x 2

Kd = 8.95%

The yield to maturity is approximately 8.95%

The correct answer is D

Explanation:

The yield to maturity of the bond is calculated by applying internal rate of return formula. The current market price of the bond is the cashflow for year 0. The coupon on the bond (R = 8% x $1,000) is the cashflow for year 1 to 15 and the cashflow for year 15 is the face value.

All cashflows are discounted at 7% and 9% discount rates. The net present values were obtained by deducting the present value in year 0 from the present value of year 1 to 15.

Finally, the yield to maturity is calculated by applying the interpolation formula stated above, where LR denotes the lower discount rate, HR represents the higher discount rate, NPV1 refers to the positive NPV and NPV2 refers to the negative NPV.

Answer from: Quest

im going to come back to you?

Answer from: Quest

correct, but each time you dont pay the price of the penalty can increase.

Other questions on the subject: Business

Business, 21.06.2019 13:00, mimithurmond03

What is the percentage change in price for a zero coupon bond if the yield changes from 6.56.5% to 5.55.5%? the bond has a face value of $1 comma 0001,000 and it matures in 1010 years. use the price determined from the first yield, 6.56.5%, as the base in the percentage calculation?

Answers: 2

continue

Business, 22.06.2019 04:00, cameronbeaugh

Last week paul, ceo of quality furniture in south carolina, traveled to europe to visit customers. while overseas, paul checked his e-mail daily and showed his company's website to customers, explaining how the website will them place orders and receive merchandise more quickly. after visiting the last customer friday morning, paul was able to return to the corporate office in south carolina to meet with his board of directors that night. is the "shrinking" of time and space with air travel and electronic media.

Answers: 1

continue

Business, 22.06.2019 11:20, leshayellis1591

Lusk corporation produces and sells 14,300 units of product x each month. the selling price of product x is $25 per unit, and variable expenses are $19 per unit. a study has been made concerning whether product x should be discontinued. the study shows that $72,000 of the $102,000 in monthly fixed expenses charged to product x would not be avoidable even if the product was discontinued. if product x is discontinued, the annual financial advantage (disadvantage) for the company of eliminating this product should be:

Answers: 1

continue

Business, 22.06.2019 16:30, bedsaul12345

Which of the following has the largest impact on opportunity cost

Answers: 2

continue

You know the right answer?

Otto enterprises has a bond issue outstanding with a coupon of 8 percent that matures in 15 years. t...