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You own a bond that pays $64 in interest annually. The face value is $1,000 and the current market price is $1,062.50. The bond matures in 11 years. What is the yield to maturity

Respuesta :

sebastiansierraocm

Answer:

5.7%

Explanation:

We can find the answer using the Yield to Maturity Formula. The figure we will obtain is approximate, but it works as well:

YTM = [C+ (F-P) / n] / [(F+P) / 2

Where:

  • C = Coupon
  • F = Face value
  • P = Market Price
  • n = years to maturity

Now, we simply plug the amounts into the formula:

YTM = [64+ (1,000-1,062.50) / 11] / [(1,000+1,062.50) / 2

        = 0.057

Thus, the yield to maturity of this bond is 5.7%

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