Question

There is a bond that has a quoted price of 98.137 and a par value of $2,000. The coupon rate is 7.14 percent and the bond matures in 16 years. If the bond makes semiannual coupon payments, what is the YTM of the bond?

A) 3.73%
B) 7.34%
C) 5.50%
D) 3.67%
E) 6.61%

Answer 1

The yield to maturity (YTM) of the bond is approximately 5.50%.

Step-by-step explanation:

The yield to maturity (YTM) of a bond is the total return an investor would earn if they hold the bond until maturity and reinvest all the coupon payments at the YTM. To calculate the YTM, we need to find the interest rate that makes the present value of the bond's future cash flows equal to its current price. In this case, the bond has a quoted price of 98.137, a par value of $2,000, a coupon rate of 7.14%, and a maturity of 16 years.

Using a financial calculator or spreadsheet, we can input the relevant data to find that the YTM of the bond is approximately 5.50%. Therefore, the correct answer is C) 5.50%.