A coupon bond that pays interest of $40 semi-annually has a par value of $1,000, matures in four years, and is selling today at a $36 discount from par value.The yield to maturity on this bond is

Question

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First, we need to calculate the annual coupon payment by multiplying the semi-annual payment by 2:
$40 x 2 = $80

Next, we need to calculate how many coupon payments are left until maturity:
4 years x 2 coupons per year = 8 coupons left

Then, we need to calculate the present value of the future coupon payments and the present value of the par value (the amount the bond will pay at maturity):

PV of coupon payments = $80 x [1 - (1/1.045)^8] / 0.045 = $317.98
PV of par value = $1,000 / 1.045^8 = $720.89

The total present value of the bond is the sum of the present values of the coupon payments and the par value:
PV of bond = $317.98 + $720.89 = $1,038.87

Finally, we can use the present value of the bond to calculate the yield to maturity (YTM) using trial and error or a financial calculator. The YTM that makes the present value of the bond equal to the current market price (which is $1,000 - $36 = $964) is approximately 9.09%. Therefore, the answer is B.

A Coupon Bond That Pays Interest of $40 Semi-Annually Has