A bond will pay $80 in interest at the end of each of the next three years, plus $1,000 at the end of the third year. If it has a present market price of $950, its yield-to - maturity is: (a) 8.5%. (b) 9.4%. (c) 10%. (d) 10.5%. (e) 11.2%.

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Business

Willie Mathews

6 June, 08:30

A bond will pay $80 in interest at the end of each of the next three years, plus $1,000 at the end of the third year. If it has a present market price of $950, its yield-to - maturity is: (a) 8.5%. (b) 9.4%. (c) 10%. (d) 10.5%. (e) 11.2%.

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Phoenix Luna · Answer 1

(c) 10%

Explanation:

The formula to calculate the yield to maturity is:

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

C = Coupon Payment : $80

F = Face Value : $1,000

P = Price : $950

n = Years to maturity: 3

YTM = [80 + (1000-950) / 3] / (1000+950) / 2]

YTM=[80+16.67]/975

YTM=96.67/975

YTM = 0.1 = 10%