Answers
The Yield to maturity of (YTM) of the Bond issued by Xenon, Inc
- The Yield to maturity of (YTM) of the Bond is the discount rate at which the Bond’s price equals to the present value of the coupon payments plus the present value of the Face Value/Par Value
- The Yield to maturity of (YTM) of the Bond is the estimated annual rate of return expected by the bondholders for the bond assuming that the they hold the Bonds until it’s maturity period/date.
- The Yield to maturity of (YTM) of the Bond is calculated using financial calculator as follows (Normally, the YTM is calculated either using EXCEL Functions or by using Financial Calculator)
Variables | Financial Calculator Keys | Figure |
Par Value/Face Value of the Bond [$2,000] | FV | 2,000 |
Coupon Amount [$2,000 x 7.10% x ½] | PMT | 71 |
Market Interest Rate or Yield to maturity on the Bond | 1/Y | ? |
Maturity Period/Time to Maturity [(Jan 15, 2019 to Jan 15, 2042) x 2] | N | 46 |
Bond Price [-$2,000 x 94.387%] | PV | -1,887.74 |
We need to set the above figures into the financial calculator to find out the Yield to Maturity of the Bond. After entering the above keys in the financial calculator, we get the semi-annual yield to maturity (YTM) on the bond = 3.81%.
The semi-annual Yield to maturity = 3.81%.
Therefore, the annual Yield to Maturity of the Bond = 7.62% [3.81% x 2]
“Hence, the Yield to maturity of (YTM) of the Bond issued by Xenon, Inc will be 7.62%”
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