Homework Answers
1. Information provided:
Face value= future value= $1,000
Time= 5 years
Current price= present value= $733.84
The yield to maturity is calculated by entering the below in a financial calculator:
FV= 1,000
PV= -733.84
N= 5
Press the CPT key and I/Y to compute the yield to maturity.
The value obtained is 6.38.
Therefore, the yield to maturity is 6.38%.
2.The yield to maturity measures the return to be earned from a bond if it is held till maturity. The interest payments received are reinvested back at the same interest rate as the bond.
In case of any query, kindly comment on the solution.
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