Question

A bond is sold for $1,054.88 currently. The bond has a coupon rate of 6%, paid semi-annually, and it matures in 15 years. What is the yield-to-maturity of this bond?

a) 5.5%
b) 6%
c) 6.5%
d) 7%

Answer 1

The yield-to-maturity of this bond is approximately 5.5% based on the coupon rate, price, and time to maturity.

Step-by-step explanation:

The yield-to-maturity of a bond refers to the total return that an investor can expect if they hold the bond until it matures. In this case, the bond is sold for $1,054.88. To calculate the yield-to-maturity, we need to consider the coupon rate, the bond's price, and the time to maturity.

The formula to calculate the yield-to-maturity is:

YTM = (Annual Interest Payment + ((Face Value - Purchase Price) / Time to Maturity)) / ((Face Value + Purchase Price) / 2)

By plugging in the values from the question, the calculated yield-to-maturity is approximately 5.5%. Therefore, the correct answer is option a) 5.5%.