Assume that 10 years ago you purchased a $1,000 bond for $905. The bond pays 7.4

Question

Assume that 10 years ago you purchased a $1,000 bond for $905. The bond pays 7.40 percent interest and will mature this year.

Calculate the current yield on your bond investment at the time of the purchase. (Enter your answer as a percent rounded to 2 decimal places.)

Determine the yield to maturity on your bond investment at the time of purchase. (Enter your answer as a percent rounded to 2 decimal places.)

Assume that 10 years ago you purchased a $1,000 bond for $905. The bond pays 7.40 percent interest and will mature this year.

Explanation / Answer

(a)

current yield on your bond investment at the time of the purchase

=(1000*7.40%)/905

=8.18%

(b)

use financial calculator

PV=-905

N=11

FV=1000

PMT=1000*7.4%=74

Click CPT

Click 1/Y=8.78%

the above is the answer

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