The correct answer is E. None of the above
Note:
Current Yield = Coupon / Bond Price *100
= (Face Value * Coupon rate ) /Bond Price *100
= ( $ 5,000* 3%) / $ 5,500*100
= 2.73%
The Approximate Yield to Maturity Formula =[Coupon + ( Face Value - Market Price) / Number of years to maturity] / [( Face Value + Market Price)/2 ] *100
= [$ 150+ ( $ 5,000- $ 5500) /10] /[( $ 5,000+ $ 5500)/2] *100
= 100/5250*100
= 1.90%
Note : Coupon = Rate * Face Value
= 3% * $ 5,000
= $ 150
Since this formula gives an approximate value, the financial calculators can be used alternatively.
where,
Par Value = $ 5,000
Market Price = $ 5500
Annual rate = 3% and
Maturity in Years = 10 Years
Hence the yield to maturity = 1.89%
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