Crossfade Corp. has a bond with a par value of $2,000 that sells for $1,910.50. The bond has a coupon rate of 7.05 percent and matures in 19 years. If the bond makes semiannual coupon payments, what is the YTM of the bond

Yield to maturity of the bond is 7.5%

Explanation:

Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity.

Face value = F = $2,000

Coupon payment = $2,000 x 7.05% = $141/2  = $70.5 semiannually

Selling price = P = $1910.50

Number of payment = n = 19 years x 2 = 38

Yield to maturity = [ C + ( F - P ) / n ] / [ (F + P ) / 2 ]

Yield to maturity = [$70.5 + ( 2,000 - 1,910.50 ) / 38 ] / [ (2,000 + 1,910.50 ) / 2 ]

Yield to maturity = 72.86 / $1,955.25

Yield to maturity = 3.73% Semiannual

Yield to maturity = 7.5% annually