Question

What is the yield on a 3-year bond with a market price of $8725.00 and the bond price of $10000.00?

Answer 1

YTM :

YTM is the rate at which PV of Cash inflows are equal to Bond price when the bond is held till maturity. Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield but is expressed as an annual rate

YTM = Rate at which least +ve NPV + [ NPV at that Rate / Change in NPV due to 1% inc in disc rate ] * 1%

Particulars	Amount
Maturity price	$ 10,000.00
Current Price	$   8,725.00
Maturity period	3

YTM = [ Maturity Value / Current Price ] ^ ( 1 / n ) - 1
= [ $ 10000 / $ 8725 ] ^ ( 1 / 3) - 1
= [ 1.1461 ] ^ ( 1 / 3) - 1
= 1.0465 - 1
= 0.0465
I.e 4.65 %