Research in Slow Motion has 10.4 percent coupon bonds on the market with 16 year

Question

Research in Slow Motion has 10.4 percent coupon bonds on the market with 16 years to maturity. The bonds make semiannual payments and currently sell for 108.0 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))

Research in Slow Motion has 10.4 percent coupon bonds on the market with 16 years to maturity. The bonds make semiannual payments and currently sell for 108.0 percent of par.

Explanation / Answer

Current yield = annual coupon/price

=10.4/108.0 = 9.63%

2. LET YTM BE r

Semiannual coupon payment = 10.4%*1000/2= $52

Periods = 16*2 = 32

108%*1000 = 52/(1+r/2) +  52/(1+r/2)^2 +  52/(1+r/2)^3 ..... 1052/(1+r/2)^32

r= 9.42%

YTM = 9.42%

3. effective annual yield = (1+ 9.42%/2)^2 -1 = 9.64%

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