Question

a bond with a face value of $1,000 has 12 years until maturity, has a coupon rate of 6.4%, and sells for $1,097. what is the yield to maturity if interest is paid semiannually? (do not round intermediate calculations. enter your answer as a percent and rounded to 2 decimal places.)

Answer 1

The yield to maturity of the bond is 6.51%.

Step-by-step explanation:

To calculate the yield to maturity of a bond, you need to consider the bond's face value, coupon rate, time to maturity, and its price in the market.

In this case, the bond has a face value of $1,000, a coupon rate of 6.4%, and 12 years until maturity. It is currently selling for $1,097.

The yield to maturity is the rate of return an investor will earn if the bond is held until maturity.

By using the formula for yield to maturity, we can calculate it as follows:

YTM = [[(Annual Coupon Payment + ((Face Value - Purchase Price) / Number of Years))] / ((Face Value + Purchase Price) / 2)] * 100

Plugging in the numbers, we get:

YTM = [[(0.064 * $1,000) + (($1,000 - $1,097) / 12)] / (($1,000 + $1,097) / 2)] * 100

Calculating the above expression gives us the yield to maturity as 6.51% (rounded to 2 decimal places).