What is the yield-to-maturity (YTM)of a four-year semi-annual pay bond with a par value of $1,000 and a 4% coupon rate when the bond is currently priced at $932.35?

Question

Quizplus · Accepted Answer

The yield-to-maturity (YTM) of a bond is the internal rate of return (IRR) if the bond is held until maturity, considering all coupon payments and the redemption at par value. For a semi-annual pay bond, the YTM is calculated based on semi-annual periods. The correct YTM for this bond, given its current price, coupon rate, and maturity, is approximately 5.92%. This calculation involves solving for the discount rate that equates the present value of the bond's future cash flows (coupon payments and the redemption of the par value) to its current price.

What Is the Yield-To-Maturity (YTM)of a Four-Year Semi-Annual Pay Bond