Wayward.com $1,000 par value bonds have a 4.6% coupon paid semi-annually. They will mature in 6 years and 6 months and are currently selling at $1,015. The yield to maturity for these bonds is

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) on a bond is the interest rate that equates the present value of all future cash flows from the bond (coupon payments and the repayment of the principal) with its current price. Given that the bond has a semi-annual coupon, the YTM must be calculated on a semi-annual basis and then annualized. The correct answer, 4.33%, suggests that the calculation accounts for the semi-annual nature of the coupon payments and the current selling price slightly above par, indicating the bond is selling at a slight premium, which typically results in a YTM that is slightly lower than the coupon rate when the bond is sold at a premium.

WaywardCom $1,000 Par Value Bonds Have a 4