Question

2.) If a bond is currently priced at $1,100, and it has a coupon of $50 annually, what is the current yield?

	A.	5.00%
	B.	4.55%
	C.	2.27%
	D.	2.5%

3.) What is the price of a U.S. 30 year bond that has 11 years left to maturity, a coupon rate of 5% (semi-annual) payments, and a yield maturity (YTM) of 7%?

	A.	$848.33
	B.	$502.24
	C.	$850.03
	D.	$1,000.00

Answer 1

1)

Current yield = (Coupon / price) * 100

Current yield = (50 / 1100) * 100

Current yield = 4.55%

2)

Coupon = (0.05 * 1000) / 2 = 25

Rate = 7% / 2 = 3.5%

Number of periods = 11 * 2 = 22

Price = Coupon * [1 - 1 / (1 + r)ⁿ] / r + FV / (1 + r)ⁿ

Price = 25 * [1 - 1 / (1 + 0.035)²²] / 0.035 + 1000 / (1 + 0.035)²²

Price = 25 * 15.16712 + 469.15063

Price = $848.33

You can also find this using a financial calculator. Keys to use in a financial calculator:

FV 1000

I/Y 3.5

N 22

PMT 25

CPT PV