An investor is considering purchasing a bond with a 7.45 percent coupon interest rate, a par...
An investor is considering purchasing a bond with a 7.45 percent coupon interest rate, a par value of $1,000, and a market price of $1,033.31.
The bond will mature in nine years. Based on this information, answer the followingquestions:
a. What is the bond's current yield?
b. What is the bond's approximate yield to maturity?
c. What is the bond's yield to maturity using a financial calculator?
Note: Assume coupon payments are paid annually
a. The bond's current yield is ______%. (Round to two decimal places.)
Homework Answers
a.
Current Yield = 74.50/1,033.31
Current Yield = 7.21%
b.
Approx YTM = [74.50 + (1,000 - 1,033.31)/9]/(1,000 + 1,033.31)/2
YTM = 6.96%
c.
Calculating YTM,
I = [FV = 1,000, PV = 1,033.31, T = 9, PMT = 74.50]
I = 6.94%
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