PK Software has 7.8 percent coupon bonds on the market with 25 years to maturity
ID: 2674072 • Letter: P
Question
PK Software has 7.8 percent coupon bonds on the market with 25 years to maturity. The bonds make semiannual payments and currently sell for 108.75 percent of par.Requirement 1:
What is the current yield on PK's bonds? (Do not include the percent sign (%). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Current yield %
Requirement 2:
What is the YTM? (Do not include the percent sign (%). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Yield to maturity %
Requirement 3:
What is the effective annual yield? (Do not include the percent sign (%). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Effective annual yield %
Explanation / Answer
Question 1: current yield = coupon rate* par value/ current price current price/par = 108.75% = 1.0875 current yield = coupon rate/1.0875 = 7.8/1.0875 = 7.172413 Question 2: For a par value of 100 current price = 108.75 yield to maturity = r years to maturity = n = 25 108.75 = 7.8*[1 - (1/(1+r)^n))]/r + 100/(1+r)^n Solving this equation in excel gives yield to maturity. Question 3: Effective annual yield = [1+(coupon rate/2)]^2 -1 = [1 + (7.8%/2)]^2 -1 = 1.039^2 -1 = 0.079521 = 7.95 percent Please rate my answer and appreciate my time spent helping you! Thanks in advance!
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