Question

A bond with a face value of $1,000 has 14 years until maturity, has a coupon rate of 7.6% and sells for $1,089

What is the current yield on the bond?

What is the yield to maturity if interest is paid once a year?

What is the yield to maturity if interest is paid semiannually?

Answer #1

Ans:- we will use the RATE function of excel to find the YTM.

Current Yield on the bond is calculated by( Par Value * Coupon rate ) / Current Price of the bond.

For YTM if Interest is paid annually, Nper=14, Pmt=-$1,000*7.6%=-$76, FV=$1,000

For YTM if Interest is paid semi-annually, Nper=14*2=28, Pmt=-$1,000*7.6% / 2=-$38, FV=$1,000.

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