Final answer:
To find the yield to maturity of the bond, it is necessary to compute the present value of all future cash flows from the bond, discounted at the YTM so that it equals the bond's current price of $1,300. This typically requires iterative calculations or a financial calculator but is necessary to reflect the true earning potential of the bond if held to maturity.
Step-by-step explanation:
The question asks us to calculate the yield to maturity (YTM) on a corporation's bond that has an annual coupon interest payment of 7.35%, a par value of $1,000, a current price of $1,300, and a maturity of 12 years. To compute the YTM, which reflects the total return an investor would receive by holding the bond until maturity, we need to take into account the annual interest payments, the bond's current price, and the par value at maturity. Unlike the provided example with an 8% coupon rate and a bond selling for $964, here we must solve for the bond's YTM given its own unique coupon rate, price, and maturity duration.
The yield to maturity is found by solving the bond pricing formula, which equates the present value of all future cash flows (coupon payments and the face value at maturity) discounted at the YTM to the bond's current price. This calculation would require an iterative approach or financial calculator to arrive at the precise YTM given these specific bond characteristics. Thus, YTM involves an understanding of present value concepts, interest rates, and time value of money.