1. A General Co. bond has an 8% coupon and pays interest annually. The face value is $1,000 and the current market price is $1,020.50. The bond matures in 10 years. What is the yield to maturity?

Yield to maturity is 7.7%

Explanation:

Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity.

Face value = F = $1,000

Coupon payment = $1,000 x 8% = $80

Selling price = P = $1,020.5

Number of payment = n = 10 years

Yield to maturity = [ C + (F - P) / n ] / [ (F + P) / 2 ]

Yield to maturity = [ $80 + (1000 - 1020.5) / 10 ] / [ (1,000 + 1020.5) / 2 ]

Yield to maturity = 77.95 / 1010.25

Yield to maturity = 7.7%