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5) You own a bond that pays $64 in interest annually. The face value is $1,000 and the current market price is $1,062.50. The bond matures in 11 years. What is the yield to maturity

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Shahzaibfaraz

Answer:

The YTM is 5.66%

Explanation:

The yield to maturity is the return on bond if the bond is purchased today and held till maturity. It is a long term yield or return on the bond which is usually expressed in terms of an annual rate.

The formula for yield to maturity is given in the attachment below.

YTM = [ 64 + ((1000 - 1062.5) / 11)  /  (1000 + 1062.5) / 2 ]

YTM = $0.05655 or 5.655% rounded off to 5.66%

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