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Following are the average yield-to-maturities for various A-rated corporate bonds issued by energy companies in the US. You are the CFO of an energy company
- Following are the average yield-to-maturities for various A-rated corporate bonds issued by energy companies in the US. You are the CFO of an energy company and want to estimate the yield-to-maturity on a 7 years-to-maturity bond that you are planning to issue to the market for the first time. Given the yield-to-maturities below, compute the estimated yield-to-maturityfor this 7 years-to-maturity bond using the linear-interpolation method.
| 5% Coupon | 10% Coupon | 15% Coupon |
Average Yield-to-Maturity of 5 Years to Maturity Bonds | . | 9.01% | 9.03% |
Average Yield-to-Maturity of 8 Years to Maturity Bonds | 9.47% | . | 9.28% |
Hint: This estimation process is called Matrix Pricing. On page 110, the textbook illustrates how to estimate yield-to-maturity using the matrix pricing approach.
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