Final answer:
The yield to maturity on a bond with a face value of $1000, 5 years remaining maturity, and selling for $975 today with a 2.0% semi-annual coupon is 7%.
Step-by-step explanation:
The yield to maturity on a bond is the total return that an investor can expect to receive if the bond is held until maturity. In this case, the bond has a face value of $1000 and a remaining maturity of 5 years. It is selling for $975 today and pays a 2.0% semi-annual coupon.
To calculate the yield to maturity, we need to consider the interest payments and the capital gains. The interest payment for each semi-annual period is ($1000 x 2.0%)/2 = $10. The total interest payment for the 5-year period is 10 x 5 = $50.
The final payment at maturity is the face value of $1000. So, the total return is $50 + $1000 = $1050. The yield to maturity is then calculated as ($1050 - $975)/$975 = 7%.