Fran and Ollie purchased a $1,000,20-year bond with a coupon rate of 6.5 percent.They paid $1,050 for the bond.What is this bond's yield to maturity?

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 the maturity date, taking into account the current market price, face value, coupon rate, and time to maturity. Since Fran and Ollie paid more ($1,050) for the bond than its face value ($1,000), the yield to maturity will be less than the coupon rate of 6.5%. Among the given options, 6.1 percent is the only rate lower than the coupon rate, making it the correct choice for the bond's yield to maturity.

Fran and Ollie Purchased a $1,000,20-Year Bond with a Coupon