Question

What is the yield to maturity on a bond that pays annual coupon rate of 14%, has a par value of $1,000, matures in 10 years, and is selling for $911?

Answer 1

Yield to Maturity =15.6%

Step-by-step explanation:

The Yield to maturity is the discount rate that equates then price of the bonds to the present of cash inflows expected from the bond

The yield on the bond can be determined as follows using the formula below:

YM = C + F-P/n) ÷ 1/2 (F+P)

YM-Yield to maturity-

C- annual coupon

F- Face Value

P- Current Price

n- number of years

DATA

Coupon = coupon rate × Nominal value = 1,000 × 14%=140

Face Value = 1000

YM-?, C- 140, Face Value - 1,000, P-911 , n- 10

YM = (140 + (1000-911)/10) ÷ ( 1/2× (1000 + 911) )

YM = 0.156 × 100 = 15.6%

Yield to Maturity =15.6%