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 6.2%, and sells for $1,102. a. What is the current yield on the bond? (Enter your answer as a percent rounded to 2 decimal places.) Current yield 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 = Interest / Bond's Market Price = $62 / $1102 = 5.63%

b. YTM if Interest is Annual = {Coupon + Face Value - Price / No. of Years} / Face Value + Price / 2

YTM if Interest is Annual = {$62 + $1000 - $1102 / 10} / $1000 + 1102 / 2

YTM if Interest is Annual = {$62 - $10.2} / $1051

YTM if Interest is Annual = 4.8863%

c. YTM if Interest is Semi - Annual = {Coupon + Face Value - Price / No. of Years} / Face Value + Price / 2

YTM if Interest is Semi - Annual= {$31 + $1000 - $1102 / 10} / $1000 + 1102 / 2

YTM if Interest is Semi - Annual= {$31 - $10.2} / $1051

YTM if Interest is Semi - Annual= 1.9791

YTM if Interest is Semi - Annual= (1 + 0.019791)^2 - 1

YTM if Interest is Semi - Annual= 4.9577%

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