A coupon bond that pays interest of $90 annually has a par value of $1,000, matures in nine years, and is selling today at a $66 discount from par value.The yield to maturity on this bond is

Question

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The annual interest payment is $90, so the bond has a coupon rate of 9% ($90/$1,000).

The bond is selling at a $66 discount from its par value of $1,000, so its current price is $934 ($1,000 - $66).

We can use the present value formula to solve for the yield to maturity:

PV = (C / r) x (1 - 1 / (1 + r)^n) + FV / (1 + r)^n

where PV = current price, C = annual coupon payment, r = yield to maturity, n = number of years to maturity, and FV = par value.

Plugging in the numbers given, we get:

$934 = ($90 / r) x (1 - 1 / (1 + r)^9) + $1,000 / (1 + r)^9

Using trial and error or a financial calculator, we find that the yield to maturity is approximately 10.15%. Therefore, the correct answer is B.

A Coupon Bond That Pays Interest of $90 Annually Has