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What is the current yield for a bond that has a coupon rate of 8.9% paid...

What is the current yield for a bond that has a coupon rate of 8.9% paid annually, a par value of $1000, and 25 years to maturity? Investors require a return of 12.5% from the bond. (Round to 100th of a percent and enter as a percentage, e.g. 12.34% as 12.34)

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Answer #1

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 12.5%

And n is the no of Compounding periods 25 years

Coupon 8.9%

=

= $727.16

Current yield = Coupon / Current Price

= 89 / 727.16

= 12.24%

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