Question

Charlotte's Clothing issued a 5 percent bond with a maturity date of 15 years. Five years...

Charlotte's Clothing issued a 5 percent bond with a maturity date of 15 years. Five years have passed and the bond is selling for $690. Assume that the bond pays interest annually.

  1. What is the current yield? Round your answer to two decimal places.

      %

  2. What is the yield to maturity? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest whole number.

      %

  3. If three years later the yield to maturity is 10 percent, what will be the price of the bond? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $

Appendix B

Appendix_B.jpg

Appendix D

Appendix_D.jpg

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Answer #1

a

current yield = coupon rate*par value/current price
Current yield%=(5/100)*1000/690
Current yield% = 7.25

b

                  K = N
Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =10
690 =∑ [(5*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^10
                   k=1
YTM% = 10

c

                  K = N
Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =7
Bond Price =∑ [(5*1000/100)/(1 + 10/100)^k]     +   1000/(1 + 10/100)^7
                   k=1
Bond Price = 757
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