What is the approximate yield to maturity for a $1,000 par value bond selling for $1,120 that matures in 6 years and pays 12 percent interest annually?

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Quizplus · Accepted Answer

The yield to maturity 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 $120 (12% x $1,000), the face value of the bond is $1,000, the present value of the bond is $1,120, and the number of years to maturity is 6. Plugging these values into the formula, we get:YTM = (120 + (1,000 - 1,120) / 6) / ((1,000 + 1,120) / 2)YTM = 9.3%

What Is the Approximate Yield to Maturity for a $1,000