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How is current yield defined? Calculate the Yield to Maturity for Bond X: a 20-year bond...

How is current yield defined?
Calculate the Yield to Maturity for Bond X: a 20-year bond with FV of $1000, selling for $800 with a current yield of 15%.

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Answer #1

Answer : Current Yield is the coupon rate divided by Market Price i.e

Current Yield = Coupon / Market Price

Calculation of Yield to Maturity :

Yield to Maturity can be calculated using Rate Function of excel:

=RATE(nper,pmt,pv,fv)

where

nper is the number of years to maturity i.e 20

pmt is the periodic payment i.e 120 [Current Yield * Price = Coupon ] i.e (800 * 15%)

pv is the Current market Price i.e 800

fv is the future value i.e 1000

=RATE(20,120,-800,1000)

Yield to Maturity is 15.24%

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