The 5.25% semi-annual coupon bonds for Martha's Cupboards, Inc. are currently quoted in the newspaper at a price of 101.25. The bonds mature in seven years. What is the yield to maturity on
These bonds?

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) is the internal rate of return on the bond's cash flows, which include the semi-annual coupon payments and the face value at maturity. Given the bond's price is above par (101.25), the YTM will be slightly lower than the coupon rate of 5.25%. Calculating the YTM using the bond price, coupon rate, and time to maturity results in approximately 5.04%.

The 525% Semi-Annual Coupon Bonds for Martha's Cupboards, Inc