Use the information given in the following table for an ABM bond to answer the t

Question

Use the information given in the following table for an ABM bond to answer the two questions below Today is October 01, 2017 Type Issue Price Coupon Maturity YTM CurrentRating date rate date yield ABM | April | $896.20 | Bond 01 ? | 4-01-1 10% | 2025 2003 Assume semi-annual interest payments and par value of the ABM bond of $1,000. Use percentage denomination (% sign) and two decimals. For example, ifyour answer is 7.256 percent, enter 7.26%. What is the coupon rate of the ABM bond? What is the current yield of the ABM bond?

Explanation / Answer

Par Value = $1,000
Current Price = $896.20
Annual YTM = 10%
Semiannual YTM = 5%
Time to Maturity = 7.5 years
Semiannual Period to Maturity = 15

Let semiannual Coupon be $x

$896.20 = $x * PVIFA(5%, 15) + $1,000 * PVIF(5%, 15)
$896.20 = $x * (1 - (1/1.05)^15) / 0.05 + $1,000/1.05^15
$896.20 = $x * 10.37966 + $481.0171
$415.1829 = $x * 10.37966
$x = $40.00

Semiannual Coupon = $40.00
Annual Coupon = 2 * $40.00
Annual Coupon = $80.00

Coupon Rate = $80.00 / $1,000
Coupon Rate = 8.00%

Current Yield = Annual Coupon / Current Price
Current Yield = $80 / $896.20
Current Yield = 8.93%

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