The Pennington Corporations bonds have 12 years to remain to maturity

The Pennington Corporations bonds have 12 years to remain to maturity. Interest is paid annually. The two bonds have a Tk. 1,000 par value and the coupon interest rate is 10 percent. The bond sells at a price of Tk. 850. What is their approximate Yield To Maturity?

To find the Approximate Yield to Maturity (YTM), we use the standard shortcut formula commonly used in corporate finance:

Given Data:

• Par Value (): Tk. 1,000
• Current Market Price (): Tk. 850
• Coupon Rate: 10%
• Annual Coupon Payment ():
• Years to Maturity (): 12 years

Step-by-Step Calculation:

1. Calculate the Annual Capital Gain / Discount Amortization:

2. Calculate Average Bond Price:

3. Calculate Approximate YTM:

Final Answer:

• Approximate Yield To Maturity: 12.16%
• (Note: The exact YTM calculated via financial calculator/IRR is 12.48%).

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