A bond will pay $80 in interest at the end of each of the next three years, plus $1,000 at the end of the third year. If it has
a present market price of $950, its yield-to- maturity is: (a) 8.5%. (b) 9.4%. (c) 10%. (d) 10.5%. (e) 11.2%.
1 answer:
Answer:
(c) 10%
Explanation:
The formula to calculate the yield to maturity is:
YTM= [C+ (F-P) / n] / [(F+P) / 2]
C = Coupon Payment
: $80
F = Face Value
: $1,000
P = Price
: $950
n = Years to maturity: 3
YTM= [80+(1000-950)/3]/(1000+950)/2]
YTM=[80+16.67]/975
YTM=96.67/975
YTM= 0.1 = 10%
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