Question

The bond market requires a return of 7.5 percent on the 3-year bonds issued by Beck Co. The 7.5 percent is referred to as the: A) coupon rate. B) face rate. C) call rate. D) yield to maturity. E) current yield.

Answer 1

Answer:

The correct answer is letter "D": yield to maturity.

Explanation:

Yield to Maturity or YTM refers to the required market interest rate bonds posses. YTM represents the anticipated return investors could obtain in case they hold the bond until maturity. YTM is expressed as an annual rate and it is calculated using the following formula:

$YTM = \sqrt[n]{\frac{Face Value}{Current Price}} - 1$

where:

• n = number of years to maturity
• Face Value = maturity value of the bond
• Current Price = price of the bond today