Suppose the following bond quotes for IOU Corporation appear in the financial pa

Question

Suppose the following bond quotes for IOU Corporation appear in the financial page of today's newspaper. Assume the bond has a face value of $2,000 and the current date is April 19, 2018. Company T Vol | (Ticker) Coupon Maturity Last Price Last Yield (000s) IOU (IOU) ?? 1,845 5.7 Apr 19 109.91 27 2034 a. What is the yield to maturity of the bond? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,32.16.) b. What is the current yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. YTM b. Current yield

Explanation / Answer

a.

YTM = 4.80%

Using financial calculator BA II Plus - Input details:

#

FV = Future Value / Face Value =

-$2,000.00

PV = Present Value = Last traded price/100 x 2000 = 109.91/100 x 2000 =

$2,198.20

N = Number of years remaining x frequency = 2034-2018

16

PMT = Payment = 5.7% x -2000 =

-$114.00

CPT > I/Y = Rate per period or YTM per period =

           4.798662

Convert Yield in annual and percentage form = YTM =

4.80%

b.

Current yield = 5.19%

Current Yield = |PMT| / PV = 114 / 2198.20 =

5.19%

Using financial calculator BA II Plus - Input details:

#

FV = Future Value / Face Value =

-$2,000.00

PV = Present Value = Last traded price/100 x 2000 = 109.91/100 x 2000 =

$2,198.20

N = Number of years remaining x frequency = 2034-2018

16

PMT = Payment = 5.7% x -2000 =

-$114.00

CPT > I/Y = Rate per period or YTM per period =

           4.798662

Convert Yield in annual and percentage form = YTM =

4.80%

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