A 30-year bond matures in 7 years sells for $1,020, pays interest semiannually, and has a yield to maturity of 10.5883%. What is the bond’s current yield?
| Current Yield | = | Annual Interest / Current Price | ||
| = | $110 / $1,020 | |||
| = | 10.7843% | |||
| Current Price | = | $ 1,020 | ||
| Face Value | = | $ 1,000 | ||
| Yield to maturity | = | 10.5883% | ||
| (Semiannual payments) [10.5883%/2] | = | 5.2942% | ||
| Yield to maturity | = | [Interest payment + (Face Value - Current price)/2] / [(Face Value + Current price)/2] | ||
| 5.2942% | = | [Interest payment + (1,000 - 1,020)/2] / [((1,000 + 1,020)/2] | ||
| Interest Payment | = | $ 55.00 | ||
| Annual Interest payment | = | $55 X 2 | ||
| = | $ 110 | |||
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