What is the yield to maturity of a five-year,$5000 bond with a 4.5% coupon rate and semiannual coupons if this bond is currently trading for a price of $4876?

Question

Quizplus · Accepted Answer

To calculate yield to maturity, we need to use the present value formula and solve for the interest rate (yield) that would make the present value of the bond equal to its current market price. In this case, the coupon payments are semiannual, so the bond pays $225 every six months for five years. Using a financial calculator or Excel, we can calculate the yield to maturity as 5.07%. Therefore, the best choice is B.

What Is the Yield to Maturity of a Five-Year,$5000 Bond