?You purchase a bond for $875. It pays $80 a year (i.e., the semiannual coupon is 4 percent), and the bond matures after ten years. What is the yield to maturity?
What will be an ideal response?
The yield to maturity equates the present value of the interest payments and principal repayment. In this problem, that rate is 10%:? ($40)(12.462) + ($1,000)(0.377) = $875.48.? (PV = -875; I = ?; N = 20; PMT = 40, and FV = 1000. I = 5 per period or 10 annually.)?
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