Last year Carson Industries issued a 10-year, 13% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,065 and it sells for $1,200. What is the bond's nominal yield to maturity

10%

Explanation:

This can be calculated using the nominal yield to maturity (YTM) formula as follows:

Yield to maturity = [C + ((F - P) / n) ] / [ (F + P) / 2] ... (1)

Where;

F = Face or par value = $1,000

C = Coupon or interest payment = $1,000 * 13% = $130

P = quoted price = $1,200

n = Years to maturity = 10

Substituting the values into equation (1), we have:

Yield to maturity = [130 + ((1,000 - 1,200) / 10) ] / [ (1,000 + 1,200) / 2] = 0.10, or 10%.