Ch 07- Video Lesson-Bonds and Their Valuation Watch the video and are the that follows. Yield To Maturity vs Yield To Call RETU % FURR ? BOND LIFE: H++ . $ $ Transcript If the arms of a bond do not allow the issue to buy the band back early, you can use the to estimate the band's rate of Suppose you were offered a 14-year, 8% annual cupon, $1,000 par value bond at a price of $1,422.52. If you bought the bord, held it to maturity and received the promised interest payments and maturity valus, the rate of interest you would cam is called the band's yield to maturity (YT). The yield to maturity is the value for Te that solves the following equation: Vi IN INT 81,422.52 18 V the band's value or price Ta the market rate of interest on the bond N the number of years before the bond matur INT: the dollars of interest paid each year, which equals the coupon rates the par value of the bond Mpar, armatury value of the bond To solve fat Te you could use trial and error until you find a value that results in the sum of the present valusis equaling the price of the bond, but that would be tedious and time consuming. On the other hand, you can use a financial calculator to solve for 1/9: Input Keystroke N 1/9 Output $1422.52 PV $0 $1,000 PMT PV Holding all be constant, a lower bond prices in a yado matury ILAL SCORE