Question

a 6.85 percent coupon bond with 18 years left to maturity is offered for sale at $1,025.30. what yield to maturity is the bond offering? (assume interest payments are semiannual.)

Answer 1

The yield to maturity of a bond is the annualized rate of return an investor can expect to earn if the bond is held until maturity. To calculate the yield to maturity, use the bond pricing formula and divide the present value of the cash flows by the current market price of the bond.

Step-by-step explanation:

The yield to maturity of a bond is the annualized rate of return an investor can expect to earn if the bond is held until maturity. To calculate the yield to maturity, we need to use the bond pricing formula:

1. Calculate the present value of all the future cash flows, which includes the coupon payments and the face value of the bond. In this case, the bond has a coupon rate of 6.85%, which is paid semiannually, and has 18 years left to maturity.
2. Divide the present value of the cash flows by the current market price of the bond to get the yield to maturity.

Based on the given information, the yield to maturity of the bond is approximately 6.63%.