Messenger, Inc. bonds have a 4% coupon rate with annual coupon payments and a $1,000 par...
Messenger, Inc. bonds have a 4% coupon rate with annual coupon payments and a $1,000 par value. The bonds have 5 years until maturity, and expected to yield 4.90%. What is the current yield for Messenger's bonds? 4.51% 4.33% 4.42% 4.16%
Homework Answers
Current price of the bond = Present value of all cash flows arising from the bond
Current price of the bond =
[$1,000 * Coupon rate *PVAF(4.90% , 5 yrs)] + [$1,000 * PVIF(4.90% , 5th yr)
= ($1,000 * 4% * 4.34147) + ($1,000 * 0.7872679)
= $173.66 + $787.27
Current price of the bond = $960.93
Current Yield = Annual coupon Amount / Current Price
Current Yield = $40 / $960.93
Current Yield = 4.16%
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