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​(Expected rate of return and current yield​) Time Warner has bonds that are selling for $...

​(Expected rate of return and current yield​) Time Warner has bonds that are selling for $ 1352. The coupon interest rate on the bonds is 11.60 percent and they mature in 26 years. What is the yield to maturity on the​ bonds? What is the current​ yield?

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Answer #1

Sol:

Face value (FV) = $1000

Present value (PV) = $1352

Coupon rate (PMT = 11.60%, Annual coupon payment = 1000 x 11.60% $116

Period (NPER) = 26 years

To determine yield to maturity we can use RATE function in excel:

Current yield = Annual coupon payment / Bond price

FV 1000
PV 1352
PMT 116
NPER 26
Yield to Maturity 8.27%
Current yield 8.58%

Therefore Yield to maturity on the Bond is 8.27% and Current yield is 8.58%

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