Huan Zhang bought a 10-year bond that pays 8.25 percent semiannually for $911.10. What is the yield to maturity on this bond? (Round your percentage answer to two decimal places.)

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) can be calculated using the formula for the present value of a bond, which equates the current price of the bond to the present value of its future cash flows (interest payments) plus the present value of its face value (assumed to be $1000 here, as it's not specified). Given the semiannual interest payments, the bond's interest payment per period is 0.0825 * 1000 / 2 = $41.25. The bond's price is $911.10, and it has 20 periods left (10 years * 2). Solving for the YTM involves finding the interest rate that makes the present value of the bond's future cash flows equal to its current price. This typically requires financial calculator or spreadsheet software, as it involves solving for the rate in the present value formula. The correct YTM, when calculated correctly and annualized (since it's semiannual), is approximately 9.66%.

Huan Zhang Bought a 10-Year Bond That Pays 8