Question

A bond matures in 8 years and with a coupon rate of 7.8 percent. Coupons are paid semi-annually. The bond has a face value of $1,000 and currently sells for $866.36. What is the bond’s current yield (enter answer as a percentage)?

Answer #1

Solution: | |||

Bond’s current yield (in percentage) 9.00 | |||

Working Notes: | |||

Notes:. | Bond’s current yield can be computed using formula =Annual coupon /Current Bond price | ||

Where | |||

Current bond price is already given = $866.36 which is currently selling price. | |||

Annual coupon = Par value of bond x coupon rate=$1000 x 7.8%= $78 | |||

Hence | The bond’s current yield= Annual coupon /Current Bond price | ||

The bond’s current yield= $78/$866.36 | |||

The bond’s current yield= 0.090031857 | |||

The bond’s current yield= 9.00% | |||

Please feel free to ask if anything about above solution in
comment section of the question. |

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