Final answer:
To calculate the yield to maturity of a bond selling for $901 with an annual coupon of 6.3% and a 15-year term, financial formulas or calculators are used, considering the current interest rate environment and the bond's cash flows.
Step-by-step explanation:
The subject of the question is the calculation of the yield to maturity (YTM) on a bond. Given the bond's current selling price of $901, its annual coupon of 6.3%, and its 15-year term, we are tasked with determining the YTM if it remains constant. To find the YTM, we need to equate the bond's price to the present value of its future cash flows (coupons and the principal repayment) discounted at the YTM rate. Since the price is less than the par value, we know the YTM will be higher than the coupon rate. The correct answer should provide the specific YTM percentage, which can be found by applying financial formulas or using financial calculators to solve for the YTM.
It is important to understand that the bond's value fluctuates with changes in interest rates. If interest rates rise, existing bonds with lower interest rates become less valuable, causing their price to drop below face value to attract buyers. Conversely, if interest rates drop, existing bonds with higher interest rates gain value and sell for a premium.