The current market value of a $1,000 bond is $977. The coupon rate is 6.4% and it will reach maturity in four years. Calculate the yield rate.

Question

Quizplus · Accepted Answer

The yield rate of a bond can be calculated using the formula for the yield to maturity (YTM), which takes into account the current market price, the face value, the coupon rate, and the time to maturity. Given the bond's current market value ($977), its face value ($1,000), the coupon rate (6.4%), and the time to maturity (4 years), and knowing that bond coupons are typically paid semiannually, the correct yield rate, when calculated, is approximately 7.070% compounded semiannually. This calculation involves finding the rate that equalizes the present value of the bond's future cash flows (coupon payments and the repayment of the principal at maturity) to its current market price.

The Current Market Value of a $1,000 Bond Is $977