The Petit Chef Co. has 11.3 percent coupon bonds on the market with eight years left to maturity. The bonds make annual payments and have a par value of $1,000. If the bonds currently sell for $1,127.30, what is the YTM?

The yield to maturity is 9.127%

Explanation:

The yield to maturity is the yield or return on the bond as a percentage of its current price in the market. The formula to calculate the yield to maturity is:

YTM = C + { (F - P) / n} / { (F + P) / 2}

Where,

C is the coupon payment / interest payment on the bond F is the face value of the bond P is the current market price of the bond n is the years to maturity

The coupon payment = 1000 * 0.113 = 113 per year

So, YTM = 113 + { (1000 - 1127.3) / 8} / { (1000 + 1127.3) / 2}

YTM = 0.09127 or 9.127%