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Explanation:

\`$750` = \frac{\`$150`}{(1 + \text{YTM})^1} + \frac{\`$150`}{(1 + \text{YTM})^2} + \frac{\`$150`}{(1 + \text{YTM})^3} + \frac{\`$150`}{(1 + \text{YTM})^4} + \frac{\`$1000`}{(1 + \text{YTM})^4}

At YTM of 26%, the bond’s price is $744.78, while at 25%, its bond price is 763.84. Therefore, the actual YTM is between 25% and 26%.

By linear interpolation, we calculate YTM as follows:

\text{YTM} = 0.25 + \frac{763.84 - 750}{763.84 - 744.78} \times 0.01 = 0.2573 \approx 25.73\%

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Q.4234 The purchase price of a government bond is $750. It pays $150 per year in interest for 4 years when it matures. If the redemption value of this bond is $1,000, calculate its yield to maturity if it is purchased today for $750. | Financial Risk Manager Part 2 Quiz - LeetQuiz

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Q.4234 The purchase price of a government bond is `$750`. It pays `$150` per year in interest for 4 years when it matures. If the redemption value of this bond is `$1`,000, calculate its yield to maturity if it is purchased today for `$750`.

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