Final answer:
The yield to maturity (YTM) is computed based on the bond's current price, its face value, the coupon payment, and the number of years until maturity. However, the provided selling price seems to be a typo since it's unusually high compared to the face value, and a correction is required for an accurate YTM calculation.
Step-by-step explanation:
The student is asking about the yield to maturity (YTM) for a bond. This is a key concept in finance that measures the annual return an investor can expect if they purchase the bond today and hold it until it matures, assuming all payments are made as scheduled.
To calculate the YTM for a bond with a $1000 face value, 5 years to maturity, a selling price of $5975, and a semi-annual coupon of 2.00%, we would use the following formula:
YTM = [Coupon Payment + ((Face Value - Price) / N)] / [(Face Value + Price) / 2]
Where Coupon Payment is the annual coupon payment, Face Value is the bond's face value, Price is the bond's current price, and N is the number of years to maturity. However, in this scenario, it seems there might have been a typo in the selling price. If the selling price is indeed $5975, this is well above the face value, which is unlikely in practice for a bond with a 2.00% semi-annual coupon. This needs to be corrected to proceed with the YTM calculation.