Question

What is the yield to maturity, to the nearest percent, for the following bond: current price is $928, coupon rate is 10 percent, $1,000 par value, interest paid annually, fifteen years to maturity

Answer 1

Yield to maturity 10.87%

Step-by-step explanation:

Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity.

Face value = F = $1,000

Coupon payment = $1,000 x 10% = $100

Selling price = P = $928

Number of payment = n = 15 year

The coupon rate can be calculated using following formula

Yield to maturity = [ $100 + ( $1,000 - $928 ) / 15 ] / [ ( $1,000 + $928 ) / 2 ]

Yield to maturity = $104.8 / $964

Yield to maturity = 0.1087 = 10.87%