# Lecture4

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Introduction to Real Estate Finance and Investments 11.431/15.426 Walter N. Torous Center for Real Estate MIT Fall 2023 1 / 33
Yield to Maturity I Given a coupon bond's price ( P ) and contractually stipulated payments, we may determine its yield to maturity, y . I If we assume that coupon interest is paid annually and the next coupon payment will be made twelve months from today: P = C ( 1 + y ) + C ( 1 + y ) 2 + . . . + C ( 1 + y ) n + F ( 1 + y ) n where P price C annual coupon payment y annualized required yield n number of twelve month periods F face value I Must be done numerically 2 / 33
I Example : Walt Disney's Sleeping Beauty Bonds The Walt Disney Company issued \$300,000,000 in senior debentures (bonds). The debentures carried an interest rate of 7.55% and were priced at "par". They were due to be repaid a full one hundred years after the date of their issue. I The Sleeping Beauty bonds' yield when issued was 7.55%: \$ 100 = \$ 7 . 55 ( 1 + y ) + \$ 7 . 55 ( 1 + y ) 2 + . . . + \$ 7 . 55 ( 1 + y ) 100 + \$ 100 ( 1 + y ) 100 y = RATE ( 100 , 7 . 55 , - 100 , 100 ) = 0 . 0755 . 3 / 33