The Bonsai Nursery Corporation has $1,000 par value bonds with a coupon rate of 8% per year making semiannual coupon payments
If there are twelve years remaining prior to maturity and these bonds are selling for $876.40, what is the yield to maturity for these bonds?
A) 9.80%
B) 8.00%
C) 9.77%
D) 8.33%
Answer: C
Explanation: C) The answer is found through an iterative (trial and error) process using the bond pricing formula. Bond Price = PMT × + ;
$876.40 = $40 × + ;
r = 4.885817%
YTM = 4.885817% × 2 = 9.77%.
MODE = END, P/Y = 2, C/Y = 2
INPUT 24 ? -876.40 40 1,000
KEY N I/Y PV PMT FV
CPT 9.77
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