Tangshan Industries has issued a bond which has a $1,000 par value and a 15 percent annual coupon interest rate. The bond will mature in ten years and currently sells for $1,250. Using this information, the yield to maturity on the Tangshan Industries bond is ________.

Question

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The yield to maturity (YTM) can be found using the formula for the present value of a bond, which equates the current bond price to the sum of the present value of its interest payments and the present value of its maturity value. Given the bond's current price ($1,250), its par value ($1,000), the annual coupon payment ($150, which is 15% of $1,000), and its time to maturity (10 years), the YTM that equates the bond's current price with its future cash flows is approximately 10.79%. This calculation involves solving for the discount rate that equates the bond's price with the present value of its cash flows, which is a trial-and-error process often facilitated by financial calculators or software.

Tangshan Industries Has Issued a Bond Which Has a $1,000