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

Yield to maturity = 58.5%

Explanation:

The yield to maturity on the loan can be worked out using  the Future value of a lump sum formula.  

The future value of a lump sum is the amount it would amount to if interest is earned and compounded at a certain interest rate.  

The formula is

FV = PV × (1+r)^(n)  

PV = Present Value- 1,500

FV - Future Value, - 15,000

n- number of period- 5=

r- yield to maturity ?  

15,000 = 1,500× (1+r)^(5)

(1+r)^(5) =15,000/1,500 =10

(1+r)^(5) =10

1+r = 10^(1/5)

r= 10^(1/5) -1 = 0.5848

r = 0.5848 × 100 = 58.5%

r=58.5%

Yield to maturity = 58.5%

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