Question

Bart Software has 8.5 percent coupon bonds on the market with 24 years to maturity. The bonds make semiannual payments and currently sell for 110.5 percent of par. a. What is the current yield on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the effective annual yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

a

current yield = coupon rate*par value/current price

Current yield%=(8.5/100)*100/110.5

Current yield% = 7.69

b

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =24x2

110.5 =∑ [(8.5*100/200)/(1 + YTM/200)^k]     +   100/(1 + YTM/200)^24x2

k=1

YTM% = 7.55

c

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

? = ((1+7.55/(2*100))^2-1)*100

Effective Annual Rate% = 7.69