Question

a 15-year coupon bond currently sells for 90 percent of its face value. it has a coupon rate of 10 percent paid annually. what is the yield to maturity of this bond?

Answer 1

The yield to maturity of the bond is approximately 12%.

Step-by-step explanation:

The yield to maturity of a bond can be calculated by considering the current market price, coupon rate, and face value of the bond. In this case, the bond is selling for 90% of its face value, which means it is priced at $900 (0.9 x $1,000). The annual coupon payment is 10% of the face value, which is $100. The bond has a maturity of 15 years. To calculate the yield to maturity, we can use the formula:

Yield to Maturity = (Annual Coupon Payment + (Face Value - Market Price) / Maturity) / (Face Value + Market Price) / 2

Substituting the values, we get:

Yield to Maturity = ($100 + ($1,000 - $900) / 15) / ($1,000 + $900) / 2

Solving the equation, we find that the yield to maturity of this bond is approximately 12%.