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You bought several 10-year semiannual bonds at a YTM of 5%. Their coupon rate is fixed...

You bought several 10-year semiannual bonds at a YTM of 5%. Their coupon rate is fixed at 6%. What is your current income yield?

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Answer #1

Ans:- By the PV function of excel, we will first find the current price of the bond that means the present value of the bond.

Rate = 5%/2, Nper =10*2=20, Pmt = -$1000 * 6%/2 = -$30, FV = -$1,000.

The current price of the bond is $1,077.95.

Current income yield from the bond will be calculated by Annual coupon Payment / Current price of the bond

= $30 * 2 / $1,077.95 =5.57%

Therefore, the current income yield or current yield of bond is 5.57%. (approx).

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