A General Co.bond has a coupon rate of 7 percent and pays interest annually.The face value is $1,000 and the current market price is $1,020.50.The bond matures in 20 years.What is the yield to maturity?

Question

Quizplus · Accepted Answer

To calculate yield to maturity, we need to use the following formula: 
YTM = (C + ((FV - PV) / n)) / ((FV + PV) / 2)
Where 
C = annual coupon payment
FV = face value
PV = current market price
n = number of years until maturity
Using the values provided in the question, we get: 
YTM = (70 + ((1000 - 1020.50) / 20)) / ((1000 + 1020.50) / 2)
YTM = 6.81%
Therefore, the best choice is B.