he bonds issued by Stainless Tubs bear a 6 percent coupon, payable semiannually. The bonds mature in 11 years and have a $1,000 face value. Currently, the bonds sell for $989. What is the yield to maturity?

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7 To calculate the yield to maturity (YTM) of the bonds, you need to use the formula:

YTM = (Annual Interest Payment + (Face Value - Bond Price) / Years to Maturity) / ((Face Value + Bond Price) / 2)

Let's break down the components of the formula and calculate the YTM step by step:

1. Annual Interest Payment: The bond has a 6% coupon rate, which is payable semiannually. Therefore, the annual interest payment can be calculated as:

Annual Interest Payment = Coupon Rate * Face Value / 2

In this case, the coupon rate is 6% and the face value is $1,000. So the annual interest payment is:

Annual Interest Payment = 6% * $1,000 / 2 = $30

2. Years to Maturity: The bonds mature in 11 years.

3. Bond Price: The current selling price of the bonds is $989.

Now, let's substitute the values into the YTM formula:

YTM = ($30 + ($1,000 - $989) / 11) / (($1,000 + $989) / 2)

YTM = ($30 + $11 / 11) / (($1,000 + $989) / 2)

YTM = ($30 + $1) / (($1,000 + $989) / 2)

YTM = $31 / (($1,000 + $989) / 2)

YTM = $31 / ($1,989 / 2)

YTM = $31 / $994.50

YTM ≈ 0.0312 or 3.12%

Therefore, the yield to maturity of the bonds issued by Stainless Tubs is approximately 3.12%.