Answer:
Yield to maturity of the bond is 7.5%
Explanation:
Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity.
Face value = F = $2,000
Coupon payment = $2,000 x 7.05% = $141/2 = $70.5 semiannually
Selling price = P = $1910.50
Number of payment = n = 19 years x 2 = 38
Yield to maturity = [ C + ( F - P ) / n ] / [ (F + P ) / 2 ]
Yield to maturity = [$70.5 + ( 2,000 - 1,910.50 ) / 38 ] / [ (2,000 + 1,910.50 ) / 2 ]
Yield to maturity = 72.86 / $1,955.25
Yield to maturity = 3.73% Semiannual
Yield to maturity = 7.5% annually
