Calculate Yield to Maturity for Bonsai Nursery Corporation Bonds

Yield to maturity (YTM) is a crucial measure of the expected rate of return on a bond investment if it is held until its maturity date. In the case of the Bonsai Nursery Corporation bonds, we need to calculate the YTM based on the given information.

Firstly, we need to determine the number of semiannual periods remaining until maturity. With twelve years remaining and semiannual payments, there are a total of 12 * 2 = 24 periods.

The semiannual coupon payment can be calculated by taking 8% of the $1,000 par value bond, which amounts to $1000 * 8% / 2 = $40.

Given that the bonds are currently selling for $876.40, it represents the present value (PV) of the future cash flows from the bond.

Using the rate formula in Excel, we can calculate the YTM:

=RATE(nper, pmt, -pv, fv)

Plugging in the values:

=RATE(24, 40, -876.40, 1000)

This calculation yields a semiannual yield of 4.89%. To convert this to an annual yield, we multiply by 2 to get 9.78%.

Therefore, the yield to maturity on Bonsai Nursery Corporation bonds is approximately 9.78%.