West Corp. issued 14-year bonds 2 years ago at a coupon rate of 9.8 percent. The bonds make semiannual payments. If these bonds currently sell for 103 percent of par value, what is the YTM?

The answer is 9.38%

Explanation:

This is a semiannual paying coupon. And it means West Corp pays interest twice a year.

N(Number of periods) = 24 periods ( [14years - 2 years ago] x 2)

I/Y(Yield to maturity) = ?

PV(present value or market price) = $1,030 ( 103% x $1,000)

PMT( coupon payment) = $49 ( [9.8 percent÷ 2] x $1,000)

FV( Future value or par value) = $1,000.

We are using a Financial calculator for this.

N= 24; PV = 1.030; PMT = 49; FV= $1,000; CPT I/Y= 4.69

Therefore, the Yield-to-maturity of the bond for annual is 9.38% (4.69% x 2)

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