Assume you purchased a high-yield corporate bond at its current market price of
ID: 2766861 • Letter: A
Question
Assume you purchased a high-yield corporate bond at its current market price of $925 on January 2, 2004. It pays 6.75 percent interest and it will mature on December 31, 2013, at which time the corporation will pay you the face value of $1,000. (a) Determine the current yield on your bond investment at the time of purchase. (Round your intermediate calculations and final answer to 2 decimal places.) Current yield 72.97 % (b) Determine the yield-to-maturity on your bond investment. (Round your intermediate calculations and final answer to 2 decimal places.) Yield-to-maturity % References
Explanation / Answer
(a)
Coupon = 1000*6.75% = $67.5
The current yield is = $67.5 / 925 = 0.0729 or 7.29%
(b)
Using a bond calculator the yield to maturity is = 7.86%
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