The yield to maturity on this bond according to the trial-and-error approach is 9.66 percent.
According to the statement
we have given that the Uan zhang bought a 10-year bond that pays 8. 25 percent interest per 6 months.
And we have to find that the yield to maturity on this bond.
So, For this purpose,
The amount given is $911. 10.
Years to maturity = n = 10
Coupon rate = C = 8.25%
Semiannual coupon = $1,000 × (0.0825/2) = $41.25
Yield to maturity = i
Present value of bond = PB = $911.10
Use the trial-and-error approach to solve for YTM. Since the bond is selling at a discount, we know that the yield to maturity is higher than the coupon rate.
Try YTM = 9.4%:
= $522.90 + 391.54 ≅ $914.43
The YTM is approximately 9.66 percent. Using a financial calculator provided an exact YTM of 9.656 percent (2 × 4.828%).
So, The yield to maturity on this bond according to the trial-and-error approach is 9.66 percent.
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