Answer: To calculate the yield to maturity (YTM) of a bond, we need to use the bond's current price, coupon rate, time to maturity, and face value. In this case, we have the following information:
Coupon rate = 7.25%
Current price = $913.88
Face value = $1000 (assumed)
Since the bond has a three-year maturity and pays annual coupons, we can calculate the YTM using a financial calculator or spreadsheet software. Here's the calculation:
N = 3 (number of years to maturity)
PV = -$913.88 (negative sign represents the cash outflow)
PMT = $72.50 (7.25% of $1000)
FV = $1000 (face value)
By solving for the interest rate (YTM), we can find the yield to maturity. Using a financial calculator or spreadsheet, the YTM of the bond is approximately 9.03% (rounded to two decimal places).
Therefore, the yield to maturity of the bond is approximately 9.03%.
Explanation:)