What is the yield to maturity, to the nearest percent, for the following bond: current price is $908, coupon rate is 11 percent, $1,000 par value, interest paid annually, eight years to maturity?

Question

Quizplus · Accepted Answer

To calculate the yield to maturity (YTM), we need to use the formula:
P = (C / r) x [1 - 1 / (1 + r)^n] + FV / (1 + r)^n
where:
P = current price of the bond
C = annual coupon payment
r = YTM
n = number of years to maturity
FV = face value or par value of the bond

Substitute the given values into the formula:

908 = (110 / r) x [1 - 1 / (1 + r)^8] + 1000 / (1 + r)^8

We can solve this equation by trial and error or by using a financial calculator. The result is r = 13% (rounded to the nearest percent).

Therefore, the best choice is D.

What Is the Yield to Maturity, to the Nearest Percent