Question

A bond has 8 years until maturity, has a coupon rate of 8%, and sells for $1,100. . What is the current yield on the bond? (Enter your answer as a percent rounded to 2 decimal places.) Current yield b. What is the yield to maturity of interest is paid once a year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places.) Yield to maturity c. What is the yield to maturity if interest is paid semiannually? (Do not round Intermediate calculations. Enter your answer as a percent rounded to 4 decimal places.) Yield to maturity

Answer 1

a)

Coupon = 0.08 * 1000 = 80

Current yield = (Annual coupon / price) * 100

Current yield = (80 / 1100) * 100

Current yield = 7.27%

b)

Yield to maturity = 6.3662%

Keys to use in a financial calculator:

FV 1000

PV -1100

PMT 80

N 8

CPT I/Y

c)

Semi annual coupon = 80 / 2 = 40

Number of periods = 8 * 2 = 16

Yield to maturity = 6.3843%

Keys to use in a financial calculator:

2nd I/Y 2

FV 1000

PV -1100

PMT 40

N 16

CPT I/Y