A municipal dealer quotes a 4 year, 4% term revenue bond at 98. the yield to maturity is:

Yield to maturity (YTM) = [ (C + (F-P) / n) / ((F+P) / 2) ]*100

Given:

Duration/term = n = 4 year

Interest rate or coupon = 4%

Price = P = 98

To find: Yield to maturity

Face value of the bond = F = 100

So, interest/C = 4% of 100 = 4

Solution:

Yield to maturity (YTM) = [ (C + (F-P) / n) / ((F+P) / 2) ]*100

Now, putting values in the formula,

[ (4 + (100-98) / 4) / ((100+98) / 2) ]*100 Answer = 4.54% is the yield to maturity