A $1,000 par value 5.0% Treasury bond pays interest semiannually and matures in 9 years. What is the yield to maturity if the bond is currently quoted at a price of 105.0?

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The yield to maturity is the annual rate of return an investor can expect to receive if they hold the bond until maturity. It is calculated using the following formula:YTM = (C + (FV - PV) / N) / ((FV + PV) / 2)where:C = the annual coupon paymentFV = the face value of the bondPV = the present value of the bondN = the number of years to maturityIn this case, the annual coupon payment is $50 (5.0% of $1,000), the face value of the bond is $1,000, the present value of the bond is $1,050 (105.0% of $1,000), and the number of years to maturity is 9. Plugging these values into the formula, we get:YTM = (50 + (1,000 - 1,050) / 9) / ((1,000 + 1,050) / 2)= (50 - 50 / 9) / (1,050 / 2)= 0.0432= 4.32%Therefore, the yield to maturity is 4.32%.

A $1,000 Par Value 5