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5 August, 15:53

A bond will pay $80 in interest at the end of each of the next three years, plus $1,000 at the end of the third year. If it has a present market price of $950, its yield-to - maturity is: (a) 8.5%. (b) 9.4%. (c) 10%. (d) 10.5%. (e) 11.2%.

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  1. 5 August, 15:54
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    (c) 10%

    Explanation:

    The formula to calculate the yield to maturity is:

    YTM = [C + (F-P) / n] / [ (F+P) / 2]

    C = Coupon Payment : $80

    F = Face Value : $1,000

    P = Price : $950

    n = Years to maturity: 3

    YTM = [80 + (1000-950) / 3] / (1000+950) / 2]

    YTM=[80+16.67]/975

    YTM=96.67/975

    YTM = 0.1 = 10%
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