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A corporate bond pays 3​% of its face value once per year. If this ​$4 comma 000 10​-year bond sells now for ​$4 comma 450​, what yield will be earned on this​ bond? Assume the bond will be redeemed at the end of 10 years for ​$4 comma 000.

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tutordamola

Answer:

The answer is 1.76%

Explanation:

N(Number of periods) = 10 years

I/Y(Yield to maturity) = ?

PV(present value or market price) = $4,450

PMT( coupon payment) = $120 (7 percent x $4,000)

FV( Future value or par value) = $4,000.

We are using a Financial calculator for this.

N= 10; PV = -4,450; PMT = 120; FV= 4,000;

CPT I/Y= 1.76

Therefore, the Yield-to-maturity of the bond is bond is 1.76%

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