A Japanese company has a bond outstanding that sells for 85 percent of its ¥100,000 par value. The bond has a coupon rate of 4.4 percent paid annually and matures in 15 years.

Problem 7-4 Bond Yields [LO2]

A Japanese company has a bond outstanding that sells for 85 percent of its ¥100,000 par value. The bond has a coupon rate of 4.4 percent paid annually and matures in 15 years.

  

What is the yield to maturity of this bond? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Yield to maturity

%

 

Explanation:

Here we need to find the YTM of a bond. The equation for the bond price is:

P = ¥85,000 = ¥4,400(PVIFAR%,15) + ¥100,000(PVIFR%,15)

Notice the equation cannot be solved directly for R. Using a spreadsheet, a financial calculator, or trial and error, we find:

R = YTM = 5.94%

  

Calculator Solution:

Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.

 

Enter

15

±¥85,000

¥4,400

¥100,000

N

I/Y

PV

PMT

FV

Solve for

5.94%