The Farmer National Bank has purchased a bond that has a coupon rate of 11.5% and a face value of $1,000.It has 16 years to maturity and is currently selling in the market for $1,309.80.The bond makes annual coupon payments.What is the yield-to-maturity on this bond?

Question

Quizplus · Accepted Answer

The yield-to-maturity (YTM) is the internal rate of return on the bond, which equates the present value of its future cash flows (coupon payments and face value) to its current market price. Given the bond's coupon rate, face value, market price, and time to maturity, the YTM is calculated to be approximately 8%.

The Farmer National Bank Has Purchased a Bond That Has