Rogue recovery 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) 7.35%
(b) 6.55%
(c) 6.54%
(d) 7.00%

yield to maturity = 6.545%

correct option is (C) 6.54%

Explanation:

given data

face value = $1,000 par value

coupon rate = 7 %

time = 20 year

price PV = $1,050

to find out

yield to maturity for these bonds

solution

we will apply here yield to maturity formula that is express as

yield to maturity =      ................1

here F is face value and C is annual coupon payment and P is price

so here C is = face value × coupon rate

C = 1000  × 70 % = 70

so put all value in equation 1 we get

yield to maturity =  

yield to maturity = 6.545%

correct option is (C) 6.54%

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