A bond is selling for 105% of par, has a coupon rate of 7%, and will mature in five years. There are annual coupon payments. Calculate the yield- to- maturity on an annualized basis.

Question

Quizplus · Accepted Answer

The yield-to-maturity (YTM) is calculated by solving the equation for the present value of cash flows (coupon payments and principal) equal to the bond's price. Given the bond is selling at a premium (105% of par), the YTM will be lower than the coupon rate of 7%. The closest option is 5.82%.

A Bond Is Selling for 105% of Par, Has a Coupon