Use the bond term's below to answer the question Maturity 7 years Coupon Rate 4% Face...
Use the bond term's below to answer the question
Maturity 7 years
Coupon Rate 4%
Face value $1,000
Annual Coupons
YTM 5%
Assuming the YTM remains constant throughout the bond's life, what is the bond's current yield between periods 2 and 3 ?
| 4.18% |
| 4.10% |
| 4.31% |
| 3.98% |
Homework Answers
Coupon = 0.04 * 1000 = 40
Price = Coupon * [1- 1 / (1 + r)n] / r + FV / (1 + r)n
Price = 40 * [1 - 1 / (1 + 0.05)5] / 0.05 + 1000 / (1 + 0.05)5
Price = 40 * 4.329477 + 783.526166
Price = 956.7052
Current yield = (Annual coupon / price) * 100
Current yield = (40 / 956.7052) * 100
Current yield = 4.18%
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