Question

Rudy Sandberg wants to invest in four‐year bonds that are currently priced at $868.43. These bonds...

Rudy Sandberg wants to invest in four‐year bonds that are currently priced at $868.43. These bonds have a coupon rate of 6 percent and make semiannual coupon payments. What is the current market yield on this bond?

N =

IYR =

PMT =

PV=

FV=

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Answer #1

Information provided:

Time= 4 years*2= 8 semi-annual periods

Face value= $1,000

Present value= $868.43

Coupon rate= 6%

Annual Coupon payment= 0.06*1,000= $60

The current market yield is calculated using the below formula:

Current yield= Annual coupon/ Current price of bond

                           = 60/ 868.43

                           = 0.0691*100

                           = 6.91%.

Therefore, the current market yield of the bond is 6.91%.

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