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A corporate bond has a 6% annual coupon, $1000 par value, and 25 years left to maturity. If the bond currently sells for a premium of 1120, what is the yield to maturity

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Kolawole845

Answer:

Yield to Maturity = 5.21%

Explanation:

The yield on the bond can be determined as follows using the formula below:

YM = C + F-P/n) ÷  1/2 (F+P)

YM-Yield to maturity-

C- annual coupon

F- Face Value

P- Current Price

YM-?, C-  6%× 1000 =60, Face Value - 1,000, P-1120

YM = (60 + (1000-1120)/25) ÷ ( 1/2× (1000 + 1120) )

YM = 0.0520  × 100 = 5.207

Yield to Maturity = 5.21%

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