Author Question: Ringtones Inc. wishes to issue new bonds but is uncertain how the market would set the yield to ... (Read 64 times)

Caiter2013 · **on:** Jul 10, 2018

Ringtones 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) 7.00
B) 6.55
C) 7.35
D) 6.54

Question 2

The ________ is the interest rate printed on the bond.

A) coupon rate
B) semiannual coupon rate
C) yield to maturity
D) compound rate

hugthug12 · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer: D
Explanation: D) The answer is found through an iterative (trial and error) process using the bond pricing formula.
Bond Price = PMT + ;
1,050.00 = 70 + ;
r = 6.54.
MODE = END, P/Y = 1, C/Y = 1
INPUT 20 ? -1,050 70 1,000
KEY N I/Y PV PMT FV
CPT 6.54

Answer to Question 2

Answer: A