The formula to calculate the Yield to Maturity (YTM) is:
\[ \text{Bond Price} = \sum_{k=1}^{n} \frac{CF}{(1 + r)^k} \]
where:
The Yield to Maturity (YTM) is the internal rate of return of a bond investment if the investor holds it until it matures and reinvests the coupon at the same interest rate.
Let's assume the following:
Step 1: Calculate the annual coupon payment:
\[ \text{Coupon Payment} = \text{Face Value} \times \text{Coupon Rate} = 1000 \times 0.05 = 50 \]
Step 2: Use the YTM formula to estimate \( r \) that satisfies the bond price equation.
For Bond A, the YTM is approximately 5.26%.