Question

A bond has 8 years until maturity, carries a coupon rate of 8%, and sells for $1,100. What is the yield to maturity if interest is paid once a year?

		A. 6.3662%
		B. 9.146%
		C. 5.048%
		D. None of these

A bond has 8 years until maturity, carries a coupon rate of 8%, and sells for $1,100. What is the current yield on the bond?

		A. 7.27%
		B. 9.14%
		C. 5.04%
		D. None of these

Answer 1

Answer : Correct Option is A.)6.3662%

Calculations :

Calculation of Yield to maturity :

Using Financial Calculator

=RATE(nper,pmt,pv,fv)

where nper is Number of years i.e 8

pmt is Interest payment i.e 1000 * 8% =80

pv is Current Market Price

= - 1100

Note : pv should be taken as negative.

fv is face value i.e 1000

=RATE(8,80,-1100,1000)

On putting these values

therefore ,Yield to maturity is 6.3662 %

Answer : 2 ) Correct Option is (A)7.27%

Current Yield = Coupon / Current Market Price

= (1000 * 8%) / 1100

= 80 / 1100

= 7.27%