Question

I had an exam and I missed these questions, I have listed my answers. Please tell me if they are actually wrong and with the right answer.

One which on of the following dates is the coupon of a bond paid?

a. face date b. maturity date c. coupon date d. discount date e. issue date

(my answer: Maturity date)

A bond currently trades at $1085 on the secondary market. The bond has 5 years until maturity and pays an annual coupon at 6% of face value. The facevalue of the bond is $1000. What is the coupon (or current) yield for this bond?

(my answer: .0409)

The annual interest divided by the price of a bond is referred to as the:

a. current or coupon yield b. call rate c. coupon rate d. yield to maturity e. market rate

(I put C, but debated on A.)

Answer 1

1) The answer is c. coupon date,

coupon payment is paid on the coupon's scheduled coupon date, the maturity date is the date when the bond matures and the entire bond is redeemed.

2) Your second answer is correct,

I have used MS-Excel for precision:

=RATE(5,6%*1000,-1085,1000)

=4.0861%

3) Your third answer is not correct,

The answer is a. Current Yield

Current yield is equal to Annual interest/Current price of the bond,

yield to maturity formula is a bit complicated, in the second question what we have calculated is yield to maturity.