Question

Hailey Inc. has 8% coupon bonds on the market with 10 years to maturity. The bonds...

Hailey Inc. has 8% coupon bonds on the market with 10 years to maturity. The bonds make annual coupon payments and sell for $1215.

1) what is the current yield on Haileys bonds?
2) what is the yield to maturity on Haileys bonds?
3) explain the difference between the current yield and the yield to maturity
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Answer #1

1

Current yield = 80/1215 = 6.58%

2

Yield to maturity is:

Calculator
Inputs:
PV               (1,215.000)
PMT                          80.0
FV                   1,000.00
N                              10
Output:
I/Y = IRR 5.19%

YTM is 5.19%

3

Current yield is greater than YTM because of the higher coupon price.

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