Assume you purchased a high-yield corporate bond with a face value of $1,000 at

Question

Assume you purchased a high-yield corporate bond with a face value of $1,000 at its current market price of $895 on January 2, 2010. It pays 8.00 percent interest and will mature on December 31, 2019 Determine the current yield on your bond investment at the time of purchase. (Enter your answer as a percent rounded to 2 decimal places.) (a) Current yield (b) Determine the yield to maturity on your bond investment at the time of purchase. Enter your answer as a percent rounded to 2 decimal places.) Yield to maturity

Explanation / Answer

Coupon = 8%*1000 = 80

Time to maturity = 10 years ( 2019 dec to 2010 jan)

Current yield = coupon / current price

= 80/895 = 8.94%

Yield to maturity = RATE(time to maturity, coupon, current price, face value)

   = RATE(10,80,-895,1000)

= 9.69%

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