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lucas corp bonds have 13 years remaining to maturity. interest is paid annually, they have a $1,000 par value, the coupon interest rate is 9% and the bond is currently selling for $904. what is the bond's yield to maturity?



Answer :

Bond's yield to maturity will be 1.72%, after considering its face value, market value and coupon interest rate.

Given,

Time period (n) = 12

Face value of bond (F) = $1,000

Current price of bond (P) = $904

Coupon interest rate (c) = 9%

Yield to Maturity = [C+(F-P)/n] / (F+P)/2

Yield to maturity = [9+ (1000-904)/13] / (1000+904/2)

                            =16.38/952

Yield to maturity = 1.72%

The entire return anticipated on a bond if it is kept to maturity is known as yield to maturity (YTM). Although it is represented as an annualized average, yield to maturity is viewed as a long-term bond yield. It is, therefore, the internal rate of return (IRR) of an investment result assuming the investor holds the bond to maturity, with all planned cash payments and reinvestment at the same pace.

The complete question is here:

Lucas Corp bonds have 13 years remaining to maturity.

Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 9% and the bond is currently selling for $904.

What is the bond's yield to maturity?

  • 9.00%
  • 11.18%
  • 10.38%
  • 1.72%

Learn more about yield to maturity here:

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