Which of the following bonds offers the highest current? yield?
a. A 8.10 ?%, ?20-year bond quoted at 99.103 .
b. A 13.50 ?%, ?15-year bond quoted at 165.172 .
c. A 4.05 ?%, ?18-year bond quoted at 49.552 .
The current yield of the bond in part a is ____ ?%. ?(Round to two decimal? places.)
The current yield of the bond in part b is_____ ?%. ?(Round to two decimal? places.)
The current yield of the bond in part c is _______ ?%. ?(Round to two decimal? places.)
Answer to Part a.
Let the Face Value of the Bond be “$1,000”
Annual Coupon = $1,000 * 8.10%
Annual Coupon = $81
Current Price = $1,000 * 99.103%
Current Price = $991.03
Current Yield = 81 / 991.03 * 100
Current Yield = 8.17%
Answer to Part b.
Let the Face Value of the Bond be “$1,000”
Annual Coupon = $1,000 * 13.50%
Annual Coupon = $135
Current Price = $1,000 * 165.172%
Current Price = $1,651.72
Current Yield = 135/ 1,651.72 * 100
Current Yield = 8.17%
Answer to Part c.
Let the Face Value of the Bond be “$1,000”
Annual Coupon = $1,000 * 4.05%
Annual Coupon = $40.50
Current Price = $1,000 * 49.552%
Current Price = $495.52
Current Yield = 40.50 / 495.52 * 100
Current Yield = 8.17%
All the Bonds offer the same Current Yield.
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