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1. Bonds issued by Fairfax Paint have a par value of 1000 dollars, were priced at...

1. Bonds issued by Fairfax Paint have a par value of 1000 dollars, were priced at 906.54 dollars six months ago, and are priced at 829.08 today. The bonds pay semi-annual coupons and just made a coupon payment. If the bonds had a percentage return over the past 6 months (from 6 months ago to today) of -2.33 percent, then what was the current yield of the bonds 6 months ago? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

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Answer #1

Current Price = $829.08
Price 6 months ago = $906.54

Percentage Return = (Current Price + Semiannual Coupon - Price 6 months ago) / Price 6 months ago
-0.0233 = ($829.08 + Semiannual Coupon - $906.54) / $906.54
-$21.12 = Semiannual Coupon - $77.46
Semiannual Coupon = $56.34

Annual Coupon = 2 * Semiannual Coupon
Annual Coupon = 2 * $56.34
Annual Coupon = $112.68

Current Yield 6 months ago = Annual Coupon / Price 6 months ago
Current Yield 6 months ago = $112.68 / $906.54
Current Yield 6 months ago = 0.1243

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