Question

Consider a 23-year bond with 6 percent annual coupon payments. The market rate (YTM) is 8.2 percent for this bond. The current yield of the bond is _______ percent. Answer it in percentage without the % sign, and round it to two decimal place, e.g., 5.69.

Answer 1

Step 1: Calculation of bonds Current price

Price = Coupon * PVaf(ytm,n) + Face value * PVif(ytm, n)

where, Face value assumed to be $1000.

Coupon = $1000 * 6% i.e. $60

ytm = 8.2%, n= 23 Year

so Putting value in equation we get,

Price = 60 * PVaf(8.2%, 23) + 1000 * PVif(8.2%, 23)

Price = 60 * 10.2046 + 1000 * 0.1632

Price = 612.28 + 163.20

Price = $ 775.48

Step 2: Calculation of Current yield

Current Yield = (Coupon / Price)*100

Current yield = (60 / 775.48)*100

Current yield = 7.74%.

You please write it as 7.74 only

NOTE:- Please refer the Excel for calculation of PVaf and PVif as follows

i hope you understand the concept, and dont forget to rate. Please comment your doubts i will always available to calrify that. thank you