Question

the market price of a bond is 875.00. the bonds have a 4.25% coupon rate paid annually and mature in six years. what is the yield to maturity for the bonds if an investor buys them at the 875.00 market price?

Answer 1

Yield to maturity=1098.125

Step-by-step explanation:

Yield to maturity=Return when the bond matures

Yield to maturity=market price+coupon rate

where;

Market price=875

Coupon rate=4.25% annually of market price for 6 years=(4.25/100)×875×6)=223.125

Replacing;

Yield to maturity=875+223.125=1098.125