Answer:
14%
Explanation:
Using the equation,
1. c(1 + r)/1 + c(1 + r)/2 + . . . + c(1 + r)/Y + B(1 + r)/Y = P
where
c is annual coupon payment (in dollars, not a percent)
So c = 10% of $1000
=$100
Y is number of years to maturity = 8
B is par value =$1000
P is purchase price $814.45
r is yield to maturity, rd
Therefore substitute the values
100(1+r)/1 + 100(1+r)/2 + 100(1+r)/3 + 100(1+r)/4 + 100(1+r)/5 + 100(1+r)/6 + 100(1+r)/7 + 100(1+r)/8 + 1000(1+r)/8 = 814.45
yield to maturity, rd =14.00%
