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Southern Bell has issued percent bonds that mature on August

Customer Question

Southern Bell has issued percent bonds that mature on August 1, 2011. Assume that interest is paid and compounded annually. Determine the yield to maturity if an investor purchases a $1,000 denomination bond for $853.75 on August 1, 2004.
Submitted: 8 years ago.
Category: Homework
Expert:  Neo replied 8 years ago.

Good day!

 

Welcome to JustAnswer!

 

Yield to Maturity is 7.098%.

 

Please download HERE for the computation.

 

If you found my answer helpful, please click the Accept button.

 

Thank you so much! :)

Neo and 4 other Homework Specialists are ready to help you
Customer: replied 8 years ago.
Relist: No answer yet.
Expert:  Neo replied 8 years ago.

Hello Poloblue,

 

I already answered this.

 

Do you have clarification question? Or do you wish an alternative way of computation?

Customer: replied 8 years ago.
I want to know how you got that answer, how you worked the problem to get that particular percentage, to teach me for future use
Expert:  Neo replied 8 years ago.

Okay.

 

I think I have to teach you the fastest way of computation but you have to be familiarize with the "terms" used.

 

Nper = Number of Period

Pmt = Interest payment (Face Value of Bond x Interest rate)

PV = selling price of the bond (should be written as negative figure)

FV = Face value of bond

 

In this problem, we got

Nper = 7 years

Pmt = $1,000 x 4 3/8% = $1,000 x 4.375% = $43.75

PV = $853.75, we should write this as -$853.75 for computation purpose only.

FV = $1,000

 

Now, using the excel formula,

=rate(nper,pmt,pv,fv)

 

Plug in the values

=rate(7,43.75,-853.75,1000)

 

If you copy and paste this =rate(7,43.75,-853.75,1000) to excel, it will give you the computation for the yield to maturity.

 

I hope this helps.

Customer: replied 8 years ago.
i entered =rate(7,43.75,-853.75,1000) onto the fx bar & only the percentage showed up, i want to see exactly how you worked the problem to get the answer you got
Expert:  Neo replied 8 years ago.
Do you mean manual computation?
Customer: replied 8 years ago.
yes
Expert:  Neo replied 8 years ago.
THIS ANSWER IS LOCKED!

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