assume an investor has purchased a bond with the following characteristics: seven years to maturity $1,000 face value 6% annual coupon (paid semiannually) 8.43% current yield $711.74 current market price which of the following is the bond's yield to maturity? a) 9.83% b) 6.13% c) 12.25% d) 4.92%

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10-11-2022
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assume an investor has purchased a bond with the following characteristics: seven years to maturity $1,000 face value 6% annual coupon (paid semiannually) 8.43% current yield $711.74 current market price which of the following is the bond's yield to maturity? a) 9.83% b) 6.13% c) 12.25% d) 4.92%

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febyyyvaalentina febyyyvaalentina · Answer 1 · 2022-11-16T09:31:55+01:00

The bond's yield to maturity is 12.25%.

The YTM of a bond can be stated as the internal rate of return (IRR) connect with buying that bond and keep it until its maturity date. The YTM can be also said it is the return on investment connected with buying the bond and reinvesting its coupon payments at a constant interest rate.

To determine the YTM you can use this equation

YTM = (C + {(FV - PV)/t})/{(FV + PV)/2}

Coupon = coupon rate x face value

Coupon = 6% x $1000

Coupon = $60

YTM = (C + {(FV - PV)/t})/{(FV + PV)/2}

YTM = ($60 + {($1000 - $711.74)/7})/{($1000 + $711.74)/2}

YTM = $60 + $41.18 / 855.87

YTM = 0.118

YTM = 12.25%%

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