What is the yield to maturity (approx.) of a 7%, 10-year bond selling for $900?
A) 6.4%
B) 6.3%
C) 7.4%
D) 8.5%

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 payments are made as scheduled and reinvested at the same rate. A bond selling for less than its face value (a discount) will have a YTM higher than its coupon rate. Since the bond in question has a coupon rate of 7% but is selling for $900 (below its face value), its YTM must be higher than 7%. Among the given options, 8.5% is the only rate higher than 7%, indicating that the bond's YTM is approximately 8.5%.

What Is the Yield to Maturity (Approx