Question

A twelve-year bond pays 13% interest on a $1000 face value annually. If it currently sells...

A twelve-year bond pays 13% interest on a $1000 face value annually. If it currently sells for $1,285, what is its yield to maturity? Assume interest payments are paid on an annual basis.

A. 9.02%

B. 13.66% C.

14.33%

D. 11.94%

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Answer #1

I have solved this problem using Excel's "Rate" function

Attaching the calculations and formulas used :-

It may be noted that Current Selling Price of a bond is also the Present Value of the bond obtained by discounting its cash flows with YTM

Hence, correct answer is Option A = 9.02%

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