A 10-year Circular File bond pays interest of $70 annually and sells for $978. W

Question

A 10-year Circular File bond pays interest of $70 annually and sells for $978. What are its coupon rate and yield to maturity? (Do not round intermediate calculations. Round "Coupon rate" to 1 decimal place and "Yield to maturity" to 2 decimal places.)

A 10-year Circular File bond pays interest of $70 annually and sells for $978. What are its coupon rate and yield to maturity? (Do not round intermediate calculations. Round "Coupon rate" to 1 decimal place and "Yield to maturity" to 2 decimal places.)

Explanation / Answer

coupon rate = (70/1000 )*100= 7%

Current yield= (70/978)*100 = 7.157464 %

Yield to maturity :

978=70*((1/r)-(1/(r*(1+r)^10)))+(1000/(1+r)^10)

solving :

r = 7.318%

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