What is the yield-to-maturity of a $1,000, 7% semi-annual coupon bond that matures in 2 years and currently sells for $997.07?

Question

Quizplus · Accepted Answer

The yield-to-maturity (YTM) is the annual rate of return an investor can expect to receive if they hold a bond until maturity. It is calculated using the following formula:YTM = (C + (FV - PV) / N) / ((FV + PV) / 2)where:C = the annual coupon paymentFV = the face value of the bondPV = the present value of the bondN = the number of years to maturityIn this case, the bond has a face value of $1,000, a 7% semi-annual coupon rate, and matures in 2 years. The bond is currently selling for $997.07.Plugging these values into the formula, we get:YTM = (35 + (1000 - 997.07) / 4) / ((1000 + 997.07) / 2)YTM = 7.16%Therefore, the yield-to-maturity of the bond is 7.16%.

What Is the Yield-To-Maturity of a $1,000, 7% Semi-Annual Coupon