Question

Rudy Sandberg wants to invest in four-year bonds that are currently priced at $768. These bonds have a coupon rate of 4.62 percent and make semiannual coupon payments. What is the current market yield on this bond? (Round answer to 2 decimal places, e.g. 15.25%.)

Current market yield ..... %

Answer 1

Current Market Price = $ 768, Coupon Rate = 4.62% per annum payable semi-annually, Par Value = $ 1000, Bone Tenure = 4 years or (4x2) = 8 half-years

Semi-Annual Coupon = 0.5 x 0.0462 x 1000 = $ 23.1

Let the current market yield be 2y

Therefore, 768 = 23.1 x (1/y) x [1-{1/(1+y)^(8)}] + 1000 / (1+y)^(8)

Using EXCEL's Goal Seek Function/hit and trial method/a financial calculator to solve the above equation, we get:

y = 0.06054 or 6.054 %

Current Market Yield = 2 x y = 2 x 6.054 = 0.12108 or 12.108 % ~ 12.11 %