Blackstone, Inc. has a five-year bond outstanding that pays $60 annually. The fa

Question

Blackstone, Inc. has a five-year bond outstanding that pays $60 annually. The face value of each bond is $1,000, and the bond sells for $890. c) what is the yield to maturity? I have provided the information my professor provided since I could not figure this problem out but I still have some questions and hope someone can explain where the numbers came from. Determination of the yield to maturity (r): $890 = $60 +....+ $60 + $1,000 (1 + r) (1 + r)5 (1 + r)5 Select an interest rate (e.g., 8%) and substitute into the equation: $60(3.993) + $1,000(.681) = $921 <---(where did the 3.993 and the .681 get calculated from) Repeat the process (e.g., 9%): $60(3.890) + $1,000(.650) = $883 <---(same here where did the 3.890 and .650 get calculated from) The yield to maturity is between 8% and 9%. Using a financial calculator: PV = -890; PMT = 60; FV = 1000; N = 5, and I = ?. I = 8.81%

Explanation / Answer

. Black stone, inc. has a five-year bond outstanding that pays $60 annually. The face value of each bond is $1,000, and the bond sells for $890.

a. What is the bond’s coupon rate?
Coupon Rate = $60 / $1,000 = 6%

b. What is the current yield?
Current Yield = $60 / $890 = 6.74%

c. What is the yield to maturity?
Using Financial Calculator: 8.814%

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