Question

A $1,000 par value 12-year bond with a 9 percent coupon rate recently sold for $980. The yield to maturity is

Answer 1

0.92%

Step-by-step explanation:

To find the answer, we use the Yield to Maturity Formula (YTM):

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

Where C is coupon, F is face value or par value, n is years to maturity, and P is price.

now we plug the amounts into the formula

YTM = [90 + (1,000-980)/12] / [(1,000+980)/2]

YTM = 0.0092

YTM = 0.92%

So the YTM of this bond is only 0.92%, which is a very low YTM, typical of very safe securities like government bonds.