Question

Dave harris has just purchased a bond with a face value of $1,000 that pays 6 percent. the purchase price of the bond was $900, and the bond will mature in 5 years. what is the yield to maturity for this bond?

Answer 1

The yield of maturity for this bond is "8.4 percent".
We can calculate this in the following way;
Yield to maturity = YTM = {($1,000 x .06) + [($1,000 - 900)/5]}/[($900 + $1,000)/2]
=(60 + 20) / (950)
=80/950
=0.084
=0.084 x 100
= 8.4 percent