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A coupon bond that pays interest of 4% annually has a par value of $1,000, matures in 5 years, and is selling today at $785. The actual yield to maturity on this bond is ________. (Hint: use financial calculator to get I/Y. PMT is 4% of par value.) 8.82% 9.62% 9.12% 7.24%

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Zviko

Answer:

9.62%.

Explanation:

Set the values of the bond on the financial calculator as follows :

PV = - $785

FV = $1,000

PMT = $1,000 x 4% = $40

P/YR = 1

N = 5

I/YR = ??

Here the question requires us to determine the value of the yield to maturity or I/YR.

Inputting the values as above in the financial calculator gives the I/YR as 9.62%.

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