A discount bond has been sold to investors at $1,122 and has a stated coupon rate...

Question

Question

A discount bond has been sold to investors at $1,122 and has a stated coupon rate of $50. When it matures in 10 years, what is the yield to maturity?

Group of answer choices

5.93%

12.2%

3.53%

3.78%

Answer 1

Answer #1

Answer: The correct answer is 3.53%

Face Value = $1,000
Current Price = $1,122

Annual Coupon = $50

Time to Maturity = 10 years

Let annual YTM be i%

$1,122 = $50 * PVIFA(i%, 10) + $1,000 * PVIF(i%, 10)

Using financial calculator:
N = 10
PV = -1,122
PMT = 50
FV = 1000

I = 3.53%

Annual YTM = 3.53%

Answer 2

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