The current market price of Smith Corporation's 10-year bonds is $1,297.58. A 10 percent coupon interest rate is paid semiannually, and the par value is equal to $1,000. What is the yield to maturity (YTM), (stated on a simple, or annual, basis) if the bonds mature 10 years from today?

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) can be calculated using the bond price, coupon payments, and time to maturity. Given the bond price is above par, the YTM will be less than the coupon rate. The semiannual coupon is $50 ($1,000 * 10% / 2), and there are 20 periods (10 years * 2). Using a financial calculator or YTM formula, the YTM is approximately 6% annually.

The Current Market Price of Smith Corporation's 10-Year Bonds Is