A bond with a face value of $1,000 has 10 years until maturity, carries a coupon

Question

A bond with a face value of $1,000 has 10 years until maturity, carries a coupon rate of 5.2%, and sells for $1,105. a. What is the current yield on the bond? (Enter your answer as a percent rounded to 2 decimal places.) Current yield 7.29 % b. What is the yield to maturity if interest is paid once a year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places.) Yield to maturity % c. What is the yield to maturity if interest is paid semiannually? (Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places.) Yield to maturity %

Explanation / Answer

a)

Current yield = Annual coupon payments/Bond price

= $52/$1,105

= 4.71%

b)

c)

1 Face value (FV) $                                   1,000 2 Coupon rate 5.20% 3 Number of compounding periods per year                                                1 1*2/3 Interest per period (PMT) $                                   52.00 Bond price (PV) $                           (1,105.00) 4 Number of years to maturity 10 5 = 4*3 Number of compounding periods till maturity (NPER)                                             10 Bond yield to maturity RATE(NPER,PMT,PV,FV) Bond yield to maturity 3.91%

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