Question

You own a bond with a par value of $1,000 and a coupon rate of 8.50% (semiannual coupon). You know it has a current yield of 7.00%. What is its yield to maturity? The bond has 6 years to maturity. Current Yield = (annual payment / price). (hint: solve for price to answer the question). Group of answer choices

Answer 1

To calculate the yield to maturity (YTM) of a bond, you need to use a formula that takes into account the annual coupon payment, par value, current market price, and number of years to maturity. In this case, the YTM is 9.22%.

Step-by-step explanation:

To calculate the yield to maturity (YTM) of a bond, you need to use the formula:

YTM = (C + (F - P) / n) / ((F + P) / 2)

• Where:

In this case, the coupon rate is 8.50%, which means the annual coupon payment is $85 ($1,000 × 8.50% / 2). The current yield is 7.00%, which means the price of the bond can be calculated as $85 / 7.00% = $1,214.29. Plugging these values into the YTM formula:

YTM = (85 + (1,000 - 1,214.29) / 6) / ((1,000 + 1,214.29) / 2) = 9.22%

Answer 2

Answer for the question:

You own a bond with a par value of $1,000 and a coupon rate of 8.50% (semiannual coupon). You know it has a current yield of 7.00%. What is its yield to maturity? The bond has 6 years to maturity. Current Yield = (annual payment / price). (hint: solve for price to answer the question). Group of answer choices

is given in the attachment.

Step-by-step explanation: