Assume that you can buy a bond for $555 today. The bond will pay you $75 in annual coupon payments (i.e. interest payments) at the end of each of the next 12 years, plus repay the original $1000 par value of the bond at the end of the 12th year. What annual rate of return would you expect to earn on the investment (i.e., what is the bond's YTM?)?

a. 15.7 %
b. 16.1 %
c. 17.6 %
d. 16.5 %
e. None of the above or insufficient information

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Solution:

Let us see cash flows associated with this bond
Year End Cash flow
0 -555
1 ...

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Solution describes the steps to find YTM of a bond.

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