Assume 1,000 par and semiannual compounding
GHI Company bonds have a coupon rate of 3.63 percent, 4 years to maturity, and a current price of $1,086. What is the current yield on these bonds (in percent)? Answer to two decimals
Information provided:
Future value= $1,000
Time= 4 years*2= 8 semi-annual periods
Current price= present value= $1,086
Coupon rate= 3.63%/2= 1.8150% per semi-annual period
Coupon payment= 0.018159*1,000= $18.15
Current yield is calculated using the below formula:
Current Yield= Annual interest/Current price
= $18.15*2/ $1,086
= $36.30/ $1,086
= 0.0334*100 = 3.34%.
In case of any query, kindly comment on the solution.
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