Final answer:
Yield to maturity represents the total expected return if the bond is held to maturity, and the precise calculation for it involves equating present value of future cash flows to the bond's current market price. It includes coupon payments and the face value of the bond at maturity. The given bond's YTM would have to be calculated through an iterative process that is not explained here.
Step-by-step explanation:
The yield to maturity (YTM) of a bond represents the internal rate of return (IRR) of the bond, assuming it is held until maturity and the coupons are reinvested at the same rate. Calculating YTM can be complex and typically requires a financial calculator or spreadsheet software; however, an approximation can be provided using estimation and formula methods. Given that the bond has a market price of $749.40, a face value of $1,000, 16 years to maturity, and an annual coupon of $100 (which is a 10% coupon rate), the YTM will reflect the discount rate that equates the present value of all future coupon payments and the face value payment at maturity to the current market price of the bond.
The exact YTM is not provided through a simple formula and would require an iterative process to solve for the yield which equates the present value of future cash flows from the bond (coupon payments and the repayment of face value at maturity) to the price of $749.40. Note that the coupon rate does not change but the yield to maturity adjusts based on the current market price of the bond. When interest rates in the market rise, the value of existing bonds falls in order to offer a yield that is competitive with the new market rates.