Question

Bonds issued by XYZ have a par value of $1000, were priced at $1,140.00 six months...

Bonds issued by XYZ have a par value of $1000, were priced at $1,140.00 six months ago, and are priced at $1,060.00 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 -1.20%, then what is the current yield of the bonds today?

a.

11.64% (plus or minus 0.05 percentage points)
b.

9.54% (plus or minus 0.05 percentage points)
c.

10.58% (plus or minus 0.05 percentage points)
d.

12.51% (plus or minus 0.05 percentage points)
e.

None of the above is within 0.05 percentage points of the correct answer
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Homework Answers

Answer #1

1. Computation of Semi Annual Coupon

(Sale price - Purchase price + Semi Annual Coupon) / Purchase price = Percentage Return

(1060 - 1140 + Semi Annual Coupon) / 1140 = -1.20%

(- 80 + Semi Annual Coupon) = $13.68

Semi Annual Coupon = $93.68

2. Annual Coupon = $93.68 * 2 = $187.36

3. Current Yield = Annual Coupon / Current Price

Current Yield = $187.36 / 1060

Current Yield = 17.68%

Option E is correct None of the above is within 0.05 percentage points of the correct answer

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