Question

OL Bonus question (10 points): A bond with a face value of $1,000 has annual coupon payments of $80 and was issued 5 years ago. The bond currently sells for $1,000 and has 10 years remaining to maturity. This bond's __must be 8%. , and

Answer 1

Face value of the bond = $1000

Annual coupon payment = $80

Annual coupon rate = Annual coupon payment/Face Value = 80/1000 =  8%

Time to maturity = 10 years

Current price of the bond = $1000

YTM Calculation

Since, the current price of the bond = Face value of the bond, we can say that the bond is trading at par. If a bond trades at par then YTM = Coupon rate

So, YTM of the bond = 8%

Current Yield calculation

Current yield of the bond is given by the below formula:

Current Yield = Annual coupon payment/Current price of the bond

Annual coupon payment = 80

Current price of the bond = 1000

Current Yield = 80/1000 = 8%

Therefore,

Coupon rate = YTM = Current Yield = 8%

Answer

A bond with a face value of $1000 has annual coupon payments of $80 and was issued 5 years ago. The bond currently sells at $1000 and has 10 years remaining to maturity. The bond's Coupon rate, YTM (Yield to maturity), and Current Yield must be 8%