The current market price of Smith Corporation's 10 percent,10-year bonds is $1,297.58.A 10 percent coupon interest rate is paid semiannually,and the par value is equal to $1,000.What is the YTM (stated on a simple,or annual,basis)if the bonds mature 10 years from today?

Question

Quizplus · Accepted Answer

We can use the bond pricing formula to solve for the YTM:

PV = (C/r)(1 - 1/(1+r)^n) + FV/(1+r)^n

where PV = $1,297.58, C = $100 (10% of $1,000), n = 20 (10 years * 2 semiannual payments per year), and FV = $1,000.

Solving for r using trial and error or a financial calculator, we get a YTM of approximately 6%. Therefore, the best choice is B.

The Current Market Price of Smith Corporation's 10 Percent,10-Year Bonds