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.

a) What is the yield to maturity of the bond?

b) What is the current yield?

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.

Company Coupon Maturity Last Price Last Yield EST Vol (000s) IOU 8.30 Apr. 15, 2036 91.675 ?? 1,841

a) What is the yield to maturity of the bond?

b) What is the current yield?

Explanation / Answer

a)

b)

Current yield = Annual coupon/Bond price

= $83/$916.75

= 9.05%

Face value (FV) $                                        1,000 Coupon rate 8.30% Number of compounding periods per year                                                    1 Interest per period (PMT) $                                        83.00 Bond price (PV) $                                   (916.75) Number of years to maturity 23 Number of compounding periods till maturity (NPER)                                                  23 Bond Yield to maturity RATE(NPER,PMT,PV,FV) Bond Yield to maturity 9.18%

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