A bond has a 1000 par value 10 years to maturity and a 9 ann

A bond has a $1,000 par value, 10 years to maturity, and a 9% annual coupon and sells for $975, what is its yield to maturity (YTM)? 4. D A. 9.40 B. 9.80 7.68 ? D. 722 Continue without saving Copyright Notices Terms of Privacy NoticeSecurity Notice Accessibility

Solution

We have

Yield To Maturity (YTM) = (Interest per annum+average other cost per annum) / average fund employed

Interest per annum = 1000*9%

= 90

average other cost per annum = (Redemption price - current market price) / life remaining to maturity

= (1000-975) / 10

= 2.5

average fund employed = (.4*Redemption price) + (.6*current market price)

= (.4*1000) + (.6*975)

= 400 + 585

= 985

Yield To Maturity (YTM) = (90 + 2.5) / 985

= 92.5 / 985

= .0939

= 9.40%