Question

What is the yield to maturity on a simple loan for \(1,500 that requires a repayment of \)15,000 in five years?

Short answer

Th Yield to Maturity on a simple loan is 58.5%

Step-by-step solution

Step 1. Introduction

Bonds are debt instruments that are issued by governments or businesses to raise funds. Bu purchasign a bond, an invest lends money to the issuer. In return, the investor gets the principal amount along with the interest at the maturity of the bond.

Step 2. Explanation

$$\begin{gathered} YieldtoMaturitywillbecalculatedas: \\ 1500=\frac{15000}{(1+r)^n} \\ 1500=\frac{15000}{(1+r)^5} \\ YTM=5\sqrt{\frac{\$15000}{\$1500}} \\ =5\sqrt{10}-1 \\ =1.5848-1 \\ =0.585 \\ =58.5\% \end{gathered}$$