12. Today is a day in May 2525 and a bond with an coupon rate of 8.0% just yeste

Question

12.

Today is a day in May 2525 and a bond with an coupon rate of 8.0% just yesterday paid a coupon. The bond matures in November 2540 and its quoted bond price is 118.03 percent of par (semiannual compounding). Find the yield to maturity (YTM) and current yield.

Select one:

a. The current yield is 5.86% and the YTM is 6.18%

b. The current yield is 3.39% and the YTM is 3.09%

c. The current yield is 6.78% and the YTM is 3.09%

d. The current yield is 6.78% and the YTM is 6.18%

e. The current yield is 3.39% and the YTM is 6.18%

Explanation / Answer

Answer:c The current yield is 6.78% and the YTM is 3.09%

Current yield = (Annual Interest / Market price)*100

=(8/118.03)*100

=6.78%

YTM= 3.09%

using online calculator http://www.investopedia.com/calculator/aoytm.aspx

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