Engineering Board Exam Reviewer · Bonds · hard
A P100,000 bond with a 6% annual coupon matures in 4 years. It is bought for P95,000. Find the yield to maturity (compounded annually).
- 6%
- 7.44%
- 8%
- 7.49%
Answer
D. 7.49%
Solution
Solve 95,000=6,000(P/A,i,4)+100,000(P/F,i,4). At i=7% the price is P96,612.79 and at i=8% it is P93,375.75. Solving numerically gives i 7.49%.
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