The yield to maturity on a 1-year bond purchased for $980 with a maturity value of $1100 is:
A)10.05%
B)12.24%
C)13.50%
D)14.23%

Question

Quizplus · Accepted Answer

To calculate the yield to maturity on a bond, we need to find the interest rate that equates the present value of the bond's cash flows to its purchase price. 
In this case, the purchase price is $980, which means that we must solve for the interest rate that equates the present value of the bond's cash flows to $980. 
Using a financial calculator, we find that the yield to maturity is approximately 12.24%. Therefore, the correct answer is B.

The Yield to Maturity on a 1-Year Bond Purchased for $980