Question

Rolling Company bonds have a coupon rate of 6.20 percent, 25 years to maturity, and a current price of $1,196. What is the YTM? The current yield? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) YTM Current yield

Answer 1

YTM or Yield to maturity

= C + [ ( F – P) / n ] / [ ( F + P) / 2 ]

Where,

C = Annual Coupon = Face Value x Coupon Rate

= $1,000 x 6.20%

= $62

F = Face value of the bond = $1,000

P = Current Price of the bond = $1,196

n = Years left to maturity = 25

So, YTM

= $62 + [ ( $1,000 - $1,196) / 25] / [ ( $1,000 + $1,196) / 2]

= $62 + [ - $196 / 25] / $1,098

= ($62 - $7.84) / $1,098

= 0.0493 or 4.93%

Current Yield

= Annual coupon / Current Price

= $62 / $1,196

= 0.0518 or 5.18%