Question

Suppose the following bond quote for IOU Corporation appears in the financial page of today’s newspaper. Assume the bond has a face value of $1,000, it makes semiannual interest payments, and the current date is April 15, 2019.

Company (Ticker)

Coupon

Maturity

Last Price

Last Yield

EST Vol (000s)

IOU (IOU)

6.8

Apr 15, 2035

103.16

??

1,830

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.)

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.)

Answer 1

K = Nx2

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

k=1

K =16x2

103.16 =∑ [(6.8*100/200)/(1 + YTM/200)^k]     +   100/(1 + YTM/200)^16x2

k=1

YTM% = 6.48

current yield = coupon rate*par value/current price

Current yield%=(6.8/100)*100/103.16

Current yield% = 6.59