Final answer:
To calculate the yield to maturity of a bond, use the formula YTM = (C + (F-P)/n) / ((F+P)/2), where C is the coupon payment, F is the face value of the bond, P is the purchase price, and n is the number of periods until maturity. Plugging in the given values, the yield to maturity of the bond is approximately 5.16%.
Step-by-step explanation:
To calculate the yield to maturity of a bond, we need to use the following formula:
YTM = (C + (F-P)/n) / ((F+P)/2)
Where:
- YTM is the yield to maturity
- C is the coupon payment
- F is the face value of the bond
- P is the purchase price
- n is the number of periods until maturity
In this case, the bond pays a semiannual coupon payment of $10, has a face value of $1,000, and sells for $942.65. It will mature in 10 years, which is equivalent to 20 periods (since it pays semiannually).
Plugging these values into the formula, we get:
YTM = (10 + (1000-942.65)/20) / ((1000+942.65)/2)
Calculating this expression, the yield to maturity of the bond is approximately 0.0516 or 5.16%.