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).)

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.

Explanation / Answer

Solution.

1.Yield to maturity of the bond.

FV 1,000, PV 916.85, N 24, PMT 81. Computes to a YTM of 8.1%

Formula = [C + ( F-P ) / n ] / F + P / 2

= [ 81 + ( 1,000 - 916.85 ) / 24 ] / 1,000 + 916.85 / 2

= 84.46 / 958.42

= 8.81%

2. The current yield.

Current Yield = $81 / $916.85,

Current yield. = 8.83%

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