Martin Software has 9.0 percent coupon bonds on the market with 20 years to matu

Question

Martin Software has 9.0 percent coupon bonds on the market with 20 years to maturity. The bonds make semiannual payments and currently sell for 107.3 percent of par.

What is the current yield on the bonds? (Round your answer to 2 decimal places. (e.g., 32.16))

What is the YTM? (Round your answer to 2 decimal places. (e.g., 32.16))

What is the effective annual yield? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is the current yield on the bonds? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Martin Software has 9.0 percent coupon bonds on the market with 20 years to maturity. The bonds make semiannual payments and currently sell for 107.3 percent of par.

What is the current yield on the bonds?

Current yield on the bonds = 90/1073 = 8.39%

What is the YTM?

YTM = rate(nper,pmt,pv,fv) * 2

YTM = rate(40,45,-1073,1000)*2

YTM = 8.25%

What is the effective annual yield?

Effective annual yield = (1+ 8.25%/2)^2 - 1

Effective annual yield = 8.42%

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