Hacker Software has 8.2 percent coupon bonds on the market with 8 years to matur

Question

Hacker Software has 8.2 percent coupon bonds on the market with 8 years to maturity. The bonds make semiannual payments and currently sell for 92.828 percent of par. Required:

(a) What is the current yield on the bonds? (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16)) Current yield % ____________

(b) Calculate the YTM. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16)) YTM % __________

(c) Calculate the effective annual yield. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16)) Effective annual yield % ________

Explanation / Answer

Hacker Software has 8.2 percent coupon bonds on the market with 8 years to maturity. The bonds make semiannual payments and currently sell for 92.828 percent of par. Required:

(a) What is the current yield on the bonds? (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Current yield = (8.2/92.828) = 8.83 %

(b) Calculate the YTM. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16)) YTM = rate(nper,pmt,pv,fv) *2

nper = 8*2 =16

pmt = 8.2%*1000*1/2 = 41

pv = 92.828%*1000 = 928.28

fv = 1000

YTM = rate(16,41,-928.28,1000) * 2

YTM = 9.50%

(c) Calculate the effective annual yield. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Effective annual yield = (1+9.50%/2)^2 -1

Effective annual yield = 9.73%

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