Question

You buy a bond for $949 that has a coupon rate of 5.60% and a maturity of 8-years. A year later, the bond price is $1,064. (Assume a face value of $1,000 and annual coupon payments.) a. What is the new yield to maturity on the bond?

Answer 1

To calculate the new yield to maturity on the bond, divide the change in bond price by the original price. In this case, the yield is 11.44%

Step-by-step explanation:

To calculate the new yield to maturity on the bond, we need to consider the change in bond price.

The bond was purchased for $949, but its price a year later is $1,064.

Since the face value of the bond is $1,000 and the coupon rate is 5.60%, we can calculate the total return or yield as follows:

Yield = ($1,064 - $949)/$949 = 11.44%