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Problem 10-2 Bond Yields (LO1, CFA2) Rolling Company bonds have a coupon rate of 6.60 percent, 23 years to maturity, and a cu

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Answer #1

Suppose the face value of the bond=$1000
Coupon rate=6.6%
Coupon payment=(Coupon rate)*(Face value)=6.6%*1000=66
Time period=23 years
Present value or current price=$1216
We can determine the value of YTM using excel

1 Face value 1000 2 Payment 66 3 Number of periods 23 4 Present value -1216 5 Yield to maturity 5.00% 6 Formula used: RATE(V3

So, the value of YTM=5.00%

Current yield=Annual coupon payment/Current value of the bond
Current yield=66/1216=0.054276316 or 5.43% *Rounded to two decimal places)

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