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4 October, 07:04

You own a bond that pays $64 in interest annually. The face value is $1,000 and the current market price is $1,062.50. The bond matures in 11 years. What is the yield to maturity

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  1. 4 October, 09:20
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    5.7%

    Explanation:

    We can find the answer using the Yield to Maturity Formula. The figure we will obtain is approximate, but it works as well:

    YTM = [C + (F-P) / n] / [ (F+P) / 2

    Where:

    C = Coupon F = Face value P = Market Price n = years to maturity

    Now, we simply plug the amounts into the formula:

    YTM = [64 + (1,000-1,062.50) / 11] / [ (1,000+1,062.50) / 2

    = 0.057

    Thus, the yield to maturity of this bond is 5.7%
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