Question

What is the current yield (CY) of a 9-year, 5.4% coupon bond with a YTM of 7.6 and annual coupon payments? Enter your answer as a percentage rounded to two decimal places (e.g., 5.64%). (Please show step by step using N, I/Y, PV, PMT and FV on a calculator as well if needed.)

Answer 1

Step-1, Calculation of the Price of the Bond

Face Value = $1,000

Annual Coupon Amount = $54 [$1,000 x 5.40%]

Annual Yield to Maturity (YTM) = 7.60%

Maturity Years = 9 Years

The Price of the bond = Present Value of the Coupon payments + Present Value of Face Value

= $54[PVIFA 7.60%, 9 Years] + $1,000[PVIF 7.60%, 9 Years]

= [$54 x 6.35215] + [$1,000 x 0.51724]

= $343.01 + $517.24

= $860.25

Step-2, Current Yield (CY) of the Bond

Current Yield of the Bond = (Annual Coupon Amount / Current Price of the Bond) x 100

= ($54 / $860.25) x 100

= 6.28%

“Therefore, the Current Yield (CY) of the Bond = 6.28%”