Final answer:
The yield to maturity of a 12-year bond with a 5% annual coupon cannot be precisely calculated without the current market price of the bond. It requires complex calculations which include the present value of the bond's future coupon payments and its face value repayment upon maturity.
Step-by-step explanation:
To calculate the yield to maturity (YTM) of a bond, you must consider the coupon payments, the face value of the bond, the price at which the bond is purchased, and how many years remain until the bond matures. The YTM is the internal rate of return expected on a bond if it is held until the maturity date, assuming that all payments are made as scheduled.
A 12-year bond with a 5% annual coupon issued at $1,000 will pay $50 annually ($1,000 x 5%). However, without the current market price of the bond, the exact yield to maturity cannot be calculated precisely. Typically, one would use a financial calculator or spreadsheet to perform the complex calculations that include solving for the rate in the present value of annuity formula. The calculation involves determining the discount rate that equates the present value of the bond's future coupon payments and its face value repayment on maturity with its current market price.