Question

Dizzy Corp. bonds bearing a coupon rate of 11%, pay coupons annually, have 2 years remaining to maturity, and the yield to maturity is 5%. The current yield is ________%.

Answer 1

Let the Face Value of the Bond be $100.
Given,
Coupon Rate = 11%
Yield to maturity = YTM = 5% = 0.05
Years remaining to maturity = 2
So,
Coupon = Face Value of Bond * Coupon Rate
	= $100 * 11%
	= $11
Current Market Price of the Bond
= Coupon / (1+YTM)^1 + (Coupon+Face Value) / (1+YTM)^2
= 11 / (1+0.05)¹ + (11+100) / (1+0.05)²
=10.48 + 100.68
=$111.16
Current Yield = Annual Coupon / Current Market Price of Bond*100
	= 11 / 111.16*100
	=9.90%