KQuestion 10 (of 10) value: 10.00 points Suppose the following bond quotes for I

Question

KQuestion 10 (of 10) value: 10.00 points Suppose the following bond quotes for IOU Corporation appear in the financial page of today's newspaper. Assume the bond has a face value of $2,000 and the current date is April 19, 2015 ompany (Ticker)CouponMaturity Ou (IOU) Last Price 104.26 EST Vol (000s) 1,841 Last Yield 7 Apr 19, 2028 What is the yield to maturity of the bond? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) YTM What is the current yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g.. 32.16.) Current yield References Difficulty: Intermediate Worksheet

Explanation / Answer

Face Value $2000 Time to maturity 13 yrs Coupon Rate 7% Bond is traded at premium (104.26-100)/100 0.0426 Present Value of Bond 2000*4.26% 85.2 2000 2085.2 Here we would assume there is annual payment of coupon YTM to be calculated is as follows PV of bond = PV of coupon payment + PV of Face Value Assuming YTM is 6% Yrs Cashflow Discounting Factor @ 6% 1/1.06^n PV 1 140 0.943396226 132.0755 2 140 0.88999644 124.5995 3 140 0.839619283 117.5467 4 140 0.792093663 110.8931 5 140 0.747258173 104.6161 6 140 0.70496054 98.69448 7 140 0.665057114 93.108 8 140 0.627412371 87.83773 9 140 0.591898464 82.86578 10 140 0.558394777 78.17527 11 140 0.526787525 73.75025 12 140 0.496969364 69.57571 13 2140 0.468839022 1003.316 2177.054 Assuming YTM is 6.5404% Yrs Cashflow Discounting Factor @ 6% 1/1.06504^n PV 1 140 0.938931871 131.4505 2 140 0.881593059 123.423 3 140 0.82775582 115.8858 4 140 0.777206321 108.8089 5 140 0.729743785 102.1641 6 140 0.685179698 95.92516 7 140 0.643337056 90.06719 8 140 0.604049665 84.56695 9 140 0.567161482 79.40261 10 140 0.532525992 74.55364 11 140 0.500005626 70.00079 12 140 0.469471218 65.72597 13 2140 0.440801489 943.3152 2085.29 Yield To maturity is 6.5404% Current Yield = 140/2085.20 0.06714 6.714%

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