Final answer:
The yield to maturity (YTM) of bonds is the total expected return if held to maturity, which reflects the bond's price, coupon payments, and time until maturity. The YTM for the BankMart Inc. bond with a coupon rate of 4% will be less than the current market rate of 9%. An exact YTM requires complex calculations beyond the scope of this example.
Step-by-step explanation:
The yield to maturity (YTM) of a bond represents the total return anticipated on a bond if the bond is held until it matures. When a bond's market interest rate rises above its coupon rate, the bond's price falls below its par value to compensate investors for the lower interest rate it pays. Therefore, if BankMart Inc. issued bonds with a coupon rate of 4% when the market interest rate is 9%, the bond will sell for less than its par value.
To calculate the bond's YTM, we would typically use a financial calculator or software as it involves solving for the discount rate that equates the present value of all future cash flows (coupons and the face value at maturity) with the current market price of the bond. However, the given example incorrectly mentions a coupon rate of 8% instead of 4%, and the formula provided simplifies YTM to an approximation rather than a precise calculation. For an accurate YTM calculation, all cash flows need to be discounted at the same rate, which is found iteratively. Since the coupon rate is actually 4%, not 8%, the YTM will be higher than 4% but lower than 9% as the bond is priced at a discount to compensate for the lower interest rate.