Suppose the following bond quotes for IOU Corporation appear in the financial pa

Question

Suppose the following bond quotes for IOU Corporation appear in the financial page of today’s newspaper. Assume the bond has a face value of $2,000 and the current date is April 19, 2015.

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.)

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.)

Company (Ticker) Coupon Maturity Last Price Last Yield EST Vol (000s)   IOU (IOU) 7.8 Apr 19, 2028 104.66 ?? 1,845

Explanation / Answer

Interets = 2000 * 7.80%= 156

Current price = 2000 *104.66 /100 = $ 2093.2

a)Yield to maturity = [Interest +(Face value -Current price)/years to maturoty ] / [(face value +current price)/2]

                           = [156 + (2000 - 2093.2 )/13 ] /(2000+2093.2)/2]

                          = [156 + (-93.2/13 ) ] /[4093.2/2]

                         = [156 - 7.17] /2046.6

                         = 148.83 / 2046.6

                        = .0727 or 7.27%

b)Current yield = Interest /current price

                      = 156/2093.2

                      = .0745 or 7.45%

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