Answer:
Your answer is given below:
Explanation:
Information provided:
Face value= future value= $1,000
Time= 5 years
Coupon rate= 8%
Coupon payment= 0.08*1,000= $80
Current yield= 8.21%
Current yield is calculated using the below formula:
Current Yield= Annual interest/Current price
0.0821= $80/ Current price
Current price= $80/ 0.0821
= $974.42
The yield to maturity is calculated by entering the below in a financial calculator:
FV= 1,000
PV= -974.42
N= 5
PMT= 80
Press the CPT key and I/Y to compute the yield to maturity.
The value obtained is 8.6517.
Therefore, the yield to maturity is 8.65%.
