Question

One More Time Software has 7.0 percent coupon bonds on the market with 13 years to maturity. The bonds make semiannual payments and currently sell for 89.5 percent of par.

Required:

(a)	What is the current yield on the bonds?
	(Click to select)8.71%0.08%7.82%0.18%8.21%

(b)	The YTM?
	(Click to select)8.52%7.50%8.34%4.17%8.21%

(c)	The effective annual yield or the EAR?
	(Click to select)8.94%8.51%8.09%8.31%0.08%

Answer 1

Kindly see below the workings below with explaination:

(a) Current Yield is 7.82% , it is the actual yield an investor would get on bonds, it factors in the discount on band. or (Coupon payment/ Current market price)

(b) YTM is 8.34%, the rate of return a bond holder will receive for the bond held until its maturity.

(c) EAY is 8.51%, the interest rate that is actually earned or paid on an investment, calculated (1 + r/2)^2 – 1,

	FV assumed 1000
Period	Coupons	PV
0
1	35	34
2	35	32
3	35	31
4	35	30
5	35	29
6	35	27
7	35	26
8	35	25
9	35	24
10	35	23
11	35	22
12	35	21
13	35	21
14	35	20
15	35	19
16	35	18
17	35	17
18	35	17
19	35	16
20	35	15
21	35	15
22	35	14
23	35	14
24	35	13
25	35	13
26	1035	358
	PV	895