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Current Yield for Annual Payments Heath Food Corporation’s bonds have 21 years remaining to maturity. The...

Current Yield for Annual Payments

Heath Food Corporation’s bonds have 21 years remaining to maturity. The bonds have a face value of $1,000 and a yield to maturity of 11%. They pay interest annually and have a 7% coupon rate. What is their current yield? Round your answer to two decimal places.

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Answer #1

Given that the coupon rate=7% and face value=$1000, so annual coupon payment=Face value*Coupon rate=$1000*7%=$70
Yield to maturity (YTM)=11%
Years to maturity or the number of periods=21

As the present value is a cash outflow, it is shown with a negative sign in excel.
So, using excel, we get the present value of the bond=$677
Current yield=Annual coupon/Current bond price
=$70/$677
=0.103397341 or 10.34% (Rounded to two decimal places)

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