A Treasury bond matures in 7 years, has a 3.50% coupon, and has a quoted price of 98.055. What is the yield to maturity?

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. The YTM is calculated based on the coupon rate, the length of time to maturity, and the difference between the purchase price and the maturity value. In this case, given the bond's coupon rate of 3.50%, a maturity of 7 years, and a purchase price of 98.055 (below par value), the YTM would be higher than the coupon rate because the investor is buying the bond at a discount. The correct YTM, without performing the exact calculation (which requires financial calculation or formulas not provided in the question), would logically be 3.82% as it is the only option provided that is higher than the coupon rate but not excessively so, reflecting the bond's discount and time to maturity.

A Treasury Bond Matures in 7 Years, Has a 3