You own a bond that pays $64 in interest annually. The face value is $1,000 and the current market price is $1,021.61. The bond matures in 11 years. What is the yield to maturity?

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) can be calculated using a financial calculator or an appropriate financial function in a spreadsheet. It is the internal rate of return (IRR) for the bond, given its current market price, face value, coupon rate, and time to maturity. The calculation involves solving for the discount rate that equates the present value of the bond's future cash flows (interest payments and the repayment of the principal at maturity) to its current market price. In this case, with an annual interest of $64, a current market price of $1,021.61, a face value of $1,000, and a maturity of 11 years, the correct YTM is approximately 6.12 percent.

You Own a Bond That Pays $64 in Interest Annually