A bond is selling for 95% of par and has a coupon rate of 6% and will mature in five years. There are semi- annual coupon payments. Calculate the yield- to- maturity on an annualized basis (APR).

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. Given the bond is selling for 95% of par, has a 6% annual coupon rate (paid semi-annually), and matures in 5 years, the YTM cannot be directly calculated without using a financial calculator or solving the bond pricing formula. However, since the bond is sold at a discount (95% of par) and pays a semi-annual coupon, the YTM must be higher than the coupon rate to compensate for the discount. Among the given options, 7.21% is the only rate significantly higher than the coupon rate, making it the most plausible answer without performing the exact calculation.

A Bond Is Selling for 95% of Par and Has