Final answer:
To calculate the yield to maturity of a bond, consider the bond's price, coupon rate, and maturity date. Use the formula (final payment - price)/price. In this case, the yield to maturity for Huanzang's bond can be calculated using the given information.
Step-by-step explanation:
To calculate the yield to maturity of a bond, you need to consider the bond's price, its coupon rate, and its maturity date.
In this case, Huanzang bought a 10-year bond that pays 8.25% semiannually for $911.10. To find the yield to maturity, start by determining the total interest payments over the 10-year period, which would be 20 payments (2 payments per year).
Next, calculate the final payment, which would be the face value of the bond plus the last coupon payment. Finally, use the formula:
yield to maturity = (final payment - price)/price
Based on the given information, the yield to maturity for Huanzang's bond can be calculated as follows:
total interest payments = 20 * (0.0825 * 911.10)final payment = 1000 + (0.0825 * 911.10)yield to maturity = (final payment - price)/price
Once you have calculated the yield to maturity, you can determine if it is greater or less than the bond's coupon rate to assess whether the bond is a good investment.