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The Sisyphean Company has a bond outstanding with a face value of $1 000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semi-annually.
-Assuming that this bond trades for $1 112, then the YTM for this bond is closest to:

Question

Quizplus · Accepted Answer

The Yield to Maturity (YTM) of a bond is the internal rate of return (IRR) if the bond is held until maturity, considering all its coupon payments and its redemption value. Given that the bond's price is above its face value ($1,112 > $1,000), the YTM must be lower than the coupon rate of 8% because the bond is trading at a premium. Among the provided options, 6.8% is the only rate lower than the coupon rate, making it the closest estimate for the YTM under these conditions.

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