Answer: 6.41%

## Explanation **Correct Answer: B (6.41%)** **Calculation Approach:** Given: - Bond price: $975.00 (discount to $1,000 par value) - Coupon rate: 6.0% annually - Maturity: 8 years - Annual coupon payment: $60 ($1,000 × 6%) Since the bond is trading at a discount ($975 < $1,000), the YTM must be **greater than** the 6% coupon rate. This eliminates option A (5.88%). **YTM Calculation Logic:** The YTM is the discount rate that equates the present value of all future cash flows to the current market price: \[975 = \frac{60}{(1+YTM)^1} + \frac{60}{(1+YTM)^2} + \cdots + \frac{60}{(1+YTM)^8} + \frac{1000}{(1+YTM)^8}\] **Verification:** - At 6.41% YTM, the present value of cash flows equals approximately $975 - The bond trades at a discount, so YTM > coupon rate - Option B (6.41%) is the only rate between 6% and 7% that satisfies this condition **Key Insight**: When a bond trades at a discount, YTM > coupon rate; when at a premium, YTM < coupon rate.

Author: LeetQuiz Editorial Team