A coupon bond that pays interest of $90 annually has a par value of $1,000,matures in 9 years,and is selling today at a $66 discount from par value.The yield to maturity on this bond is __________.

Question

Quizplus · Accepted Answer

The yield to maturity is the interest rate that equates the present value of the cash flows (i.e. the coupon payments and the face value) to the current market price of the bond.

In this case, the bond pays an annual interest of $90 for 9 years, and then returns the face value of $1,000. The present value of each payment can be calculated using the bond yield as the discount rate.

Using a financial calculator or spreadsheet program, we can find that the yield to maturity is approximately 10.15%. Therefore, option B is the correct answer.

A Coupon Bond That Pays Interest of $90 Annually Has