Question

You own a bond that pays $62 in interest annually. The face value is $1,000 and the current market price is $1,034.14. The bond matures in 10 years. What is the yield to maturity

Answer 1

Given that, the yield to maturity is

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

Where,

C= coupon interest or payment=$62

F= face value=$1000

P=price= $1034.14

n= year's to maturity =10years

Then, applying the formulae

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

YTM= (62 + (1000-1034.14)/10) / ((1000+1034.14)/2)

YTM= (62 + (-34.14)/10) / ((2034.14)/2)

YTM= (62 + - 3.414) /1017.07

+×-=-

YTM= (62 + - 3.414) /1017.07

YTM=58.586/1017.07

YTM=0.0576

Then, the percentage is

YTM=0.0576×100

YTM=5.76%

The yield to maturity is 5.76%