Suppose that a bond that will mature in three years is now traded at $99.83. The annual coupon payment is $5.635. Its yield to maturity is
A) 3.42%.
B) 5.10%.
C) 5.69%.
D) 7.20%.

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) of a bond is the internal rate of return (IRR) for the bond, given its current price, coupon payments, and maturity value. The YTM can be found by solving the bond price formula for the interest rate (YTM), which involves equating the present value of all future cash flows (coupon payments and the face value repayment at maturity) to the bond's current price. Given the information, the YTM that aligns with the provided cash flows and current price is closest to 5.69%. Calculating the exact YTM requires financial calculators or software as it involves solving for the rate in the present value equation, which cannot be done easily by hand due to its complexity.

Suppose That a Bond That Will Mature in Three Years