A $1,000 bond with 6% semi-annual coupon payments and a maturity date of 10 years is quoted at $864.11. What is the current interest rate?

Question

Quizplus · Accepted Answer

The current interest rate, or yield to maturity (YTM), can be found by solving the bond pricing formula for the interest rate. Given the bond's price is less than its face value and it pays semi-annual coupons, the YTM must be higher than the coupon rate of 6%. The only option higher than 6% is 8%.

A $1,000 Bond with 6% Semi-Annual Coupon Payments and a Maturity