Question

Suppose the following bond quotes for IOU Corporation appear in the financial page of today's newspaper. Assume the bond has a face value of $2.000 and the current date is April 19, 2018 Coupon Company (Ticker) IOU (IOU) Maturity Last Yield EST Vol (000s) Last Price 105.83 4.9 Apr 19, 2034 1,829 a. What is the yield to maturity of the bond? (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 current yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.). a. YTM b. Current yield

Answer 1

a

K = N

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

k=1

K =16

105.83 =∑ [(4.9*100/100)/(1 + YTM/100)^k]     +   100/(1 + YTM/100)^16

k=1

YTM% = 4.39

b

current yield = coupon rate*par value/current price

Current yield%=(4.9/100)*100/105.83

Current yield% = 4.63