Answer:
<em>4.78%</em>
Explanation:
<em>From the question given, we solve the issue</em>
<em>the calculation of he bond price is:</em>
<em>Price of bond = per value * (1- flotation cost)</em>
<em>$1000 * (1- 0.05)</em>
<em>= $950</em>
<em>For the calculation of semi-annual coupon payments, </em>
<em>Semi -annual coupon payment = Par value * Interest/2</em>
<em> $1000 * 0.09/2 = $45</em>
<em>Calculation of semi- annual yield to maturity</em>
<em>Let recall the following</em>
<em>YTM = yield to maturity</em>
<em>C = The semi-annual coupon payment</em>
<em>FV= Face value or par value </em>
<em>PV= Price of a bond </em>
<em>n = Maturity years of the bond </em>
<em>Therefore,</em>
<em> YTM= C + FV - PV/n/ FV + PV/2</em>
<em>which is</em>
<em>$45 + $1000 - $950/40/$1000 + $950 / 2 = 4.78%</em>
