A Corporate bond has an 8% coupon and pays interest annually. The face value is $1,000 and the current market price is $1,020.50. The bond matures in 20 years. What is the yield to maturity?

Question

Quizplus · Accepted Answer

To calculate the yield to maturity, we need to use the formula:

YTM = (C + (FV - PV) / n) / ((FV + PV) / 2)

where:

C = coupon rate = 8%
FV = face value = $1,000
PV = current market price = $1,020.50
n = number of years to maturity = 20

Plugging in the values, we get:

YTM = (0.08 + (1000 - 1020.50) / 20) / ((1000 + 1020.50) / 2)
YTM = 0.0779 or 7.79%

Therefore, the correct answer is A) 7.79%.

A Corporate Bond Has an 8% Coupon and Pays Interest