Ringtones Inc. wishes to issue new bonds but is uncertain how the market would set the yield to maturity. The bonds would be 20-year, 7% annual coupon bonds with a $1,000 par value
The firm has determined that these bonds would sell for $1,050 each. What is the yield to maturity for these bonds?
A) 7.00%
B) 6.55%
C) 7.35%
D) 6.54%
Answer: D
Explanation: D) The answer is found through an iterative (trial and error) process using the bond pricing formula.
Bond Price = PMT × + ;
$1,050.00 = $70 × + ;
r = 6.54%.
MODE = END, P/Y = 1, C/Y = 1
INPUT 20 ? -1,050 70 1,000
KEY N I/Y PV PMT FV
CPT 6.54
Business
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