Hacker Software has 12.0 percent coupon bonds on the market with 16 years to mat
ID: 2639656 • Letter: H
Question
Hacker Software has 12.0 percent coupon bonds on the market with 16 years to maturity. The bonds make semiannual payments and currently sell for 108.8 percent of par.
What is the current yield on the bonds? (Round your answer to 2 decimal places. (e.g., 32.16))
What is the YTM? (Round your answer to 2 decimal places. (e.g., 32.16))
What is the effective annual yield? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Hacker Software has 12.0 percent coupon bonds on the market with 16 years to maturity. The bonds make semiannual payments and currently sell for 108.8 percent of par.
Explanation / Answer
Answer:
Coupon bonds = 12%
Years = 16
Current price = 108.8%
Current yield = Annual cash flow / market price
= 120 / 1088
= 11.03%
YTM - using excel formula
RATE(16*2,1000*12%/2,-1088,1000)
YTM = 5.42% (semiannually)
Annually = 10.83%
Effective annual yield = (1+(10.83%/2))^2 - 1
= 11.12%
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