Final answer:
To calculate the Yield to Maturity (YTM) of the bond, you need to determine the present value of all the future cash flows from the bond. The YTM for the given bond is approximately 9.7%.
Step-by-step explanation:
The Yield to Maturity (YTM) is the total return anticipated on a bond if it is held until it matures. To calculate the YTM, we need to determine the present value of all the future cash flows from the bond. In this case, we know that the bond was issued 2 years ago for a 16-year period, with a coupon rate of 9.5% and semiannual payments.
First, let's calculate the future cash flows that the bondholder will receive. Each semiannual payment will equal the coupon rate of 9.5% divided by 2 (since it's a semiannual payment) multiplied by the face value of the bond. The final payment will also include the face value of the bond.
Next, we'll calculate the present value of these cash flows using the current market price (99% of the par value) as the discount rate. To do this, we need to discount each cash flow using the semiannual yield rate. We can solve for the semiannual yield rate using trial and error or by utilizing financial calculators or software.
By finding a semiannual yield rate that makes the sum of the present values of all the cash flows equal to the selling price of the bond (99% of the par value), we can determine the Yield to Maturity (YTM) of the bond. In this case, the YTM is calculated to be around 9.7%.