spainiomewarkld-499402882&questionl Money & Banking-Fall 2018 Homework: homework

Question

spainiomewarkld-499402882&questionl Money & Banking-Fall 2018 Homework: homework 2 Score: 0 of 1 pt End-of-Chapter Exercise 24 Save 13 of 26 (16 complete) | Score: 57 69%, 15 of Question Help * A bond has a face value of S900 and a 5% coupon rate, its current price is S840, and it is expected to increase to $880 next year. The current yield is % Enter your response rounded to one decimal place) Enter your answer in the answer box and then click Check Answer Clear All Check Answer remaining O Type here to search

Explanation / Answer

Face value of bond = $840

Coupon rate = 5%

Annual interest = Face value of bond * Coupon rate

Annual interest = $900 * 0.05 = $45

Current price = $840

Calculate the current yield -

Current yield = Annual interest/Current price

Current yield = 45/840 = 0.0535 or 5.35%

Rounded to one decimal place

The current yield is 5.4%.

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