A coupon bond that pays interest of $90 annually has a par value of $1,000, matures in nine 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 on a bond is the annual rate of return an investor can expect to receive if they hold the bond until maturity. It is calculated using the following formula:YTM = (C + (FV - PV) / N) / ((FV + PV) / 2)where:C = annual coupon paymentFV = face value of the bondPV = present value of the bondN = number of years to maturityIn this case, the annual coupon payment is $90, the face value of the bond is $1,000, the present value of the bond is $934 ($1,000 - $66), and the number of years to maturity is 9. Plugging these values into the formula, we get:YTM = (90 + (1000 - 934) / 9) / ((1000 + 934) / 2)= (90 + 66 / 9) / ((1934) / 2)= (90 + 7.33) / (967)= 97.33 / 967= 0.1015 or 10.15%Therefore, the yield to maturity on this bond is 10.15%.

A Coupon Bond That Pays Interest of $90 Annually Has