Blue's Chips Inc. has a $1,000 par value bond that is currently selling for $1,300. It has an annual coupon rate of 7%, paid semiannually, and has nine years remaining until maturity. What is the annual yield to maturity on the bond? (Round to the nearest whole percentage.)

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) on a bond is the internal rate of return (IRR) for an investor if the bond is held until maturity, assuming that all payments are made as scheduled. The YTM can be found using a financial calculator or spreadsheet software by inputting the current price, the par value, the coupon payment, and the number of periods until maturity. Given that the bond is selling for $1,300, has a $1,000 par value, a 7% annual coupon rate paid semiannually, and nine years to maturity, the YTM calculation would consider these inputs. The correct answer, rounded to the nearest whole percentage, is approximately 3.15%, indicating that the bond's yield to maturity at its current price is about 3.15% per year.