What is the yield to maturity of a corporate bond with 13 years to maturity,a coupon rate of 8% per year,a $1,000 par value,and a current market price of $1,250? Assume semiannual coupon payments.

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Quizplus · Accepted Answer

The yield to maturity (YTM) is the annual rate of return an investor can expect to receive if they hold a bond until maturity. It is calculated using the following formula:YTM = (C + (FV - PV) / N) / ((FV + PV) / 2)where:C = the annual coupon paymentFV = the face value of the bondPV = the present value of the bondN = the number of years to maturityIn this case, the annual coupon payment is $80 (8% of $1,000), the face value of the bond is $1,000, the present value of the bond is $1,250, and the number of years to maturity is 13. Plugging these values into the formula, we get:YTM = (80 + (1000 - 1250) / 26) / ((1000 + 1250) / 2)= (80 - 20) / 1125= 60 / 1125= 0.0533= 5.33%Therefore, the yield to maturity of the bond is 5.3%.

What Is the Yield to Maturity of a Corporate Bond