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2. A company’s bonds currently sell for $1,200. The bonds have a 6-year maturity, a 6%...

2. A company’s bonds currently sell for $1,200. The bonds have a 6-year maturity, a 6% coupon paid semi-annually, and a par value of $1,000. What is the bond’s current yield?

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Answer #1

Price of bond = coupon * PVIFA (n,i)+ face value * PVIF (n,i)

1200= Coupon * PVIFA (12 ,3%) + 1000 * PVIF ( 12 ,3%)

1200= Coupon *9.954003993567570    + 1000 *0.7013798801929730  

Coupon = (1200 -701.3798801929730 ) / 9.954003993567570   

= $ 50.0924170945926

Annual Coupon = Semi Annual Coupon * 2

= 50.0924170945926 *2

= $ 100.184834189185

Current Yield = Annual Coupon / Current Price *100

= $ 100.184834189185 / $ 1000*100

= 10.02%

Answer = 10.02%

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