Final answer:
The yield to maturity (YTM) of Leeland & Co.'s bond is the total return expected if held until maturity. Given that the bond is selling at a discount and the YTM should be higher than the coupon rate, the best estimate from the options provided is 9.0%, which is when the bond is sold at a discount and YTM is greater than the coupon rate.
Step-by-step explanation:
To find the yield to maturity (YTM) of Leeland & Co.'s bond, we need to understand that YTM is the total return anticipated on a bond if the bond is held until it matures. YTM is considered a long-term bond yield expressed as an annual rate.
Since the bond makes annual payments, we can calculate the YTM by using the formula to equate the present value of the bond's future cash flows (which include the annual coupon payments and the face value at maturity) to its current price.
In this case, the bond has a face value of $1,000 and an annual coupon payment of 8.50%, or $85 (8.50% of $1,000). Since the bond is selling for $946.65, we can use a financial calculator or an iterative process to determine the YTM.
The exact calculation can be complex and would typically be done using a financial calculator or specific finance software. However, since we are provided with options, we can rule out 8.5% immediately because if the bond was selling at its face value, the YTM would equal the coupon rate.
Looking at the options provided and knowing that the bond is selling at a discount to its face value (suggesting that the YTM should be higher than the coupon rate), we can narrow down the likely answer to either 9.0% or more.
In professional practice, financial calculators or software would be used to provide an exact percentage for the YTM, but given the information provided and without the exact calculation, option a) 9.0% appears to be the best estimate.