Blue's Chips Pty Ltd has a $1000 par value bond that is currently selling for $1300.It has an annual coupon rate of 7%, paid semi-annually, and has nine years remaining until maturity.What is the annual yield to maturity on the bond? (Round to the nearest whole percentage.)

Question

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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 financial calculators 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 $1300, has a $1000 par value, a 7% annual coupon rate paid semi-annually, and nine years to maturity, the YTM calculated would be closest to 3.15% when rounded to the nearest whole percentage. This reflects the bond's price premium (selling for more than its par value) and the time until maturity.

Blue's Chips Pty Ltd Has a $1000 Par Value Bond