Question

You buy a security that will pay you $500 in 1 year. You pay $455 today. If you hold this security to maturity, your yield to maturity is ____ while your rate of return is ______.

Answer 1

The yield to maturity would be 9.89% while your rate of return is 9%

What is Yield to Maturity?

This refers to the accumulated rate of return of an investment made on a bond after payment of the principal.

How to Calculate:

Given that:

• Face value of security = $500
• Price paid today = $455

Then, the yield to maturity = (Face Value/Current Price) x (1/Years to Maturity) - 1

= $500/$455 x 1/1 - 1

= 0.0989

This means that if you hold this security to maturity, the yield to maturity would be 9.89% while the rate of return is 9%.

Read more about yield to maturity here:

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Answer 2

If you hold this security to maturity, your yield to maturity is 9.89% while your rate of return is 9%.

What is the yield to maturity?

The yield to maturity (YTM) refers to the total rate of return earned by a bond when it makes all interest payments and repays the original principal.

YTM is equal to a bond's internal rate of return (IRR) if the bond were held to maturity.

Data and Calculations;

Face value of security = $500

Price paid today = $455

Yield to maturity = (Face Value/Current Price) x (1/Years to Maturity) - 1

= $500/$455 x 1/1 - 1

= 0.0989

OR

Yield in dollars = $45 ($500 - $455)

= 0.0989 ($45/$455 x 100)

Rate of return = 9% ($45/$500 x 100)

Thus, if you hold this security to maturity, your yield to maturity is 9.89% while your rate of return is 9%.

Learn more about yield to maturity and rate of return at brainly.com/question/5524579