Answer:
YTM = 0.06874 or 6.874% rounded off to 6.87%
Explanation:
The yield to maturity or YTM is the yield per year that a bond is expected to provide if it is purchased today and is held till maturity. The formula to calculate the YTM of a bond is attached.
The par value of the bond is $1000.
The coupon per period = 1000 * 0.08 * 1/2 = 40
Number of semi annual periods = 3 * 2 = 6
YTM = [ (40 + (1000 - 857)/6) / (1000 + 857)/2 ]
YTM = 0.06874 or 6.874% rounded off to 6.87%
