Yield to maturity: Nathan Akpan is planning to invest in a seven-year bond that pays annual coupons at a rate of 7 percent. It is currently selling at $927.23. What is the current market yield on such bonds? (Round to the closest answer.)
A) 10.4%
B) 9.5%
C) 8.4%
D) 7.5%

Question

Quizplus · Accepted Answer

To calculate the yield to maturity, we need to find the rate at which the present value of all future cash flows from the bond equals the current market price. This can be done using a financial calculator or Excel's YIELD function. Using Excel's YIELD function with the following inputs: settlement date = today's date, maturity date = seven years from today's date, coupon rate = 7%, frequency = 1 (annual), basis = 0 (actual/actual), bond price = $927.23, we get a yield to maturity of 8.36%. Rounded to the closest answer, the current market yield is 8.4%, which is option C.

Yield to Maturity: Nathan Akpan Is Planning to Invest in a Seven-Year