Answer:
YTM = 0.06409 or 6.409% rounded off to 6.41%
Explanation:
The YTM or yield to maturity is the yield or return that the bond will provide if it is purchased today and held till maturity. The formula to calculate the YTM will be,
YTM = [ (C + (F - P)/n) / ((F + P)/2) ]
Where,
- C is the coupon payment
- F is the face value of the bond
- P is the current value
- n is the number of years to maturity
Coupon = 1000 * 0.07 = 70
YTM = [ (70 + (1000 - 1062.50)/16) / ((1000 + 1062.50)/2) ]
YTM = 0.06409 or 6.409% rounded off to 6.41%
