PK Software has 9.4 percent coupon bonds on the market with 25 years to maturity
ID: 2632927 • Letter: P
Question
PK Software has 9.4 percent coupon bonds on the market with 25 years to maturity. The bonds make semiannual payments and currently sell for 112.75 percent of par.
What is the current yield on PK's bonds?
What is the YTM?
What is the effective annual yield?
PK Software has 9.4 percent coupon bonds on the market with 25 years to maturity. The bonds make semiannual payments and currently sell for 112.75 percent of par.
Requirement 1:What is the current yield on PK's bonds?
Requirement 2:What is the YTM?
Requirement 3:What is the effective annual yield?
Explanation / Answer
Current bond price = 1,000 x 112.75 % = $1127.5
Semi-annual coupon payment = 1,000 x 9.4 x (6/12) = $47
Annual coupon payment =$47 x2 =$94
Periods to maturity = 25 x 2 = 50
Current Yield = 94/1127.5 = 8.337%
Yield to maturity: 1127.5 = 47 ({1-[1/(1+YTM/2)]^50} / YTM/2) + 1,000 [1/(1+YTM/2)^50] YTM =8.2%
Effective annual yield = {[1 + (9.4%/2)]^2}
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