The 7 percent bonds issued by Modern Kitchens pay interest semiannually, mature in eight years, and have a $1,000 face value. Currently, the bonds sell for $1,032. What is the yield to maturity

Answer: 6.5%

The yield to maturity is 6.496% (approximated to 6.5% to nearest tenth)

Explanation:

Using the formula (semi annually YTM)

YTM = C + (fv - pv) / t : (fv + pv) / 2

C = coupon rate = 7% (1000) = $70

fv = face value = $1,000

pv = price value = $1,032

t = Time to maturity in years = 8years

C + (fv - pv) / t = 70 + (1000-1032) / 8

= 70 - (32 / 8) = 66

(fv + pv) / 2 = (1000 + 1032) / 2

= 2032 / 2

= 1016

YTM = 66 / 1016

YTM = 0.06496

In % = (6496 / 100,000) * 100

= 6.496%

Approximately ... 6.5%