Answer:
11.1%
Explanation:
Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity. It is the long term yield which is expressed in annual term. Normally yield rate is based on the default risk to which investor is exposed to, higher risk higher yield and lower risk lower yield.
As per given data
Face value = F = $1,000
Coupon payment = $1,000 x 15% = 150
Selling price = P = $1,250
Number of periods = n = 10 years
Formula for YTM is given below
Yield to maturity = [ C + ( F - P ) / n ] / [ (F + P ) / 2 ]
Placing values in the above formula
Yield to maturity = [ $150 + ( 1000 - $1,250 ) / 10 ] / [ (1,000 + $1,250 ) / 2 ]
Yield to maturity = [ $150 - 25 ] / $1,125 = $125 /$1,125 = 0.111 = 11.1%
