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, 2013.

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

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

Company
(Ticker) Coupon Maturity Last
Price Last
Yield EST Vol
(000s) IOU (IOU) 9.75 Apr 15, 2027 86.352 ?? 1,827

Explanation / Answer

Ans

Details Coupon Rate 9.75% Face Value 100 Market Price 86.352 Maturity Period 14 YTM is the rate of return that makes face value equal to Market price. While trying with a rate of 12% it gives a MV of C*((1-(1+r^-n))/r))+(FV*1+r^-n) 9.75*((1-(1.12^-14))/.12)+(100*1.12^-14)                                               85.09 Since it is less than the MV , trying with 11.5% ,gives a MV of 9.75*((1-(1.10^-14))/.12)+(100*1.10^-14)                                               88.10 Difference Between MV for 12 % and 11.5%                                                 3.01 Difference Between Current market value and MV for 11.5%                                                 1.75 YTM=11.5%+(.5%/3.01*1.75) 11.790% YTM 11.790% Current Yield Coupon Rate/Market Value 9.75/86.352 11.29%

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