A bond with a $95 annual coupon, maturing in 10 years at a value of $1,000 has a current market price of $950. What is the yield to maturity of the bond?

Question

Quizplus · Accepted Answer

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

P = (C/r) x [1 - 1/(1+r)^n] + F/(1+r)^n

Where:
P = current market price = $950
C = annual coupon payment = $95
r = yield to maturity (unknown)
n = number of years until maturity = 10
F = face value (or maturity value) = $1,000

Plugging in the values, we get:

$950 = ($95/r) x [1 - 1/(1+r)^10] + $1,000/(1+r)^10

We can solve for r using trial and error or with a financial calculator. The yield to maturity comes out to be approximately 10.3%, which is closest to answer choice B.

A Bond with a $95 Annual Coupon, Maturing in 10