Explanation:
The YTM is the value of that solves the following equation:
\`$150` = \`$10` / (1 + y)^1 + \`$10` / (1 + y)^2 + \`$10` / (1 + y)^3 + \ldots + \`$10` / (1 + y)^{20}
We can solve for YTM using a financial calculator:
N = 20; PMT = 10; PV = -150; CPT → I/Y = 2.91%.
(Book 4, Module 57.2, LO 57.d)
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Question 83
Suppose a particular fixed-income instrument offers annual payments in the amount of $10 per year for 20 years (without any additional payment at maturity). The current price for this instrument is $150. The yield to maturity (YTM) on this security is closest to:
A
0.6%.
B
1.4%.
C
2.9%.
D
8.4%.
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