Martin Software has 8.8 percent coupon bonds on the market with 19 years to matu

Question

Martin Software has 8.8 percent coupon bonds on the market with 19 years to maturity. The bonds make semiannual payments and currently sell for 107.2 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))

Martin Software has 8.8 percent coupon bonds on the market with 19 years to maturity. The bonds make semiannual payments and currently sell for 107.2 percent of par.

Explanation / Answer

Current Yield Current Yield=Coupon Rate/Market Rate Coupon Rate 8.80% Market Value 107.20% Annual Yield=Coupon Rate/Market Rate 8.8%/107.20% Current Yield 8.21% YTM Present value of bonds at a YTM of 9% Cumulative Discount Factor for 4.5% for 38       18.04999 DF at the end of 38Th semi annual Installment       0.187750 Present Value of Coupon Payments 8.8/2*18.04999              79.42 Present Value of Face Value 100*.187750              18.78 Present Value at YTM of 4.5%              98.20 Present value of bonds at a YTM of 8.6% Cumulative Discount Factor for 4.5% for 38 18.55982 DF at the end of 38Th semi annual Installment 0.20193 Present Value of Coupon Payments 8.8/2*18.55982 81.66319 Present Value of Face Value 100*.20193 20.19279 Present Value at YTM of 4.5% 101.85598 Difference in Present Value                3.66 Differene in YTM % 9%-8.6% 0.4% YTM=Difference in YTM*(PAR Value-PV @ 9%)/(PV @ 9%-PV @ 8.6%) 0.20% YTM=8.6%+.20% 8.8% Effective Annual Yield Coupon Payment compounded for Semi Annual Payment @ 4.4% 1*1+(r/2)^2-1 1*(1+0.044)^2-1 8.99%

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