Answer:
YTM = 2.84%
Explanation:
We know,
YTM =
Here,
I = Coupon payment = It is calculated by multiplying the coupon interest rate by the par value of the bond.
M = Bond's par value.
Vo = Bond's current market price.
n = Number of years or periods.
Given,
n = 18
I = Semiannual coupon bonds rate = $1,000*7%*(1/2) = $70 ÷ 2 = $35
M = Par value of a bond = $1,000
Vo = Market value of the bond = $1,102.50
Therefore,
YTM =
or, YTM =
or, YTM = $29.32 ÷ $1,034.08
or, YTM = 0.0284
Therefore, YTM = 2.84%