Question

Which of the following bonds offers the highest current? yield? a. A 8.10 ?%, ?20-year bond...

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.)

Homework Answers

Answer #1

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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