Suppose the following bond quote for IOU Corporation appears in the financial pa

Question

Suppose the following bond quote for IOU Corporation appears in the financial page of today’s newspaper. Assume the bond has a face value of $1,000 and the current date is April 15, 2016.

What is the yield to maturity of the bond? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

YTM           %

What is the current yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Current yield           %

Company (Ticker) Coupon Maturity Last Price Last Yield EST Vol (000s)    IOU (IOU) 6.6 Apr 15, 2029 103.065 ?? 1,829

Explanation / Answer

1)

Coupon payment = 0.066 * 1000 = 66

Price = 103.065% of 1000 = 1,030.65

years to maturity = 13

Yield to maturity using a financial calculator = 6.25%

Keys to use in a financial calculator: PV = -1030.65, FV = 1000, PMT = 66, N = 13, CPT I/Y

2)

Current yield = annual coupon / Price

Current yield = 66 / 1030.65

Current yield = 0.064037 or 6.40%

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