Calculating Yield to Maturity on Tangshan Industries Bond

Understanding Yield to Maturity Calculation

Yield to maturity (YTM) is the total return anticipated on a bond if it is held until it matures. It is the annual rate of return an investor can expect to earn if the bond is held until it matures, considering its current market price, par value, coupon interest rate, and the number of years remaining until maturity.

For the Tangshan Industries bond:

  • Par value = $1,000
  • Annual coupon interest rate = 15%
  • Maturity period = 10 years
  • Current selling price = $1,250

To calculate the yield to maturity, we use the following formula:

YTM = [Annual Interest Payment + (Par Value - Current Price / Number of Years to Maturity)] / [(Current Price + Par Value / 2)]

Plugging in the values for the Tangshan Industries bond:

YTM = [150 + (1250 - 1000/10)] / (1250 + 1000/2)

YTM = 10.79%

Therefore, the yield to maturity on the Tangshan Industries bond is 10.79%.

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