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finance

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Brown Enterprises’ bonds currently sell for $1,025. They have a 9-year maturity, an annual coupon of $80, and a par value of $1,000. What is their current yield?

  • finance - ,

    So the present value
    = 1000(1+i)^-9 + 80(1 - (1+i)^-9 )/i

    so 1000(1+i)^-9 + 80(1 - (1+i)^-9 )/i = 1025

    A very nasty equation to solve.

    I tried a few values:
    i = .08, RS = 1000 , looking for 1025
    i = .09, RS = 940, so let's lower the i
    i = .07, RS = 1065 , too low
    i = .075, RS = 1031.894 getting closer
    i = .077, RS = 1018.977

    ok, so i is between .075 and .077

    .075 .... 1031.894
    i ...........1025
    .077 ......1018.977

    use interpolation by setting up a ratio

    (i - .075)/(.077-.075) = (1025-1031.894)/(1018.977-1031.894)

    I will leave the arithmetic up to you, but I got
    i = .07607

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