Question

Suppose the following bond quote for IOU Corporation appears in the financial page of today’s newspaper. Assume the bond has a face value of $1,000, and the current date is April 15, 2016.

Company (Ticker)	Coupon	Maturity	Last Price	Last Yield	EST Vol (000s)
IOU (IOU)	7.90	Apr 15, 2038	91.695	??	1,843

What is the yield to maturity of the bond? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Yield to maturity             %
  
What is the current yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
Current yield             %

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Answer 1

Current Date = April 15, 2016, and maturity is 15 April, 2038. So, number of year remains in maturity is 20 year.

Face value = $1,000

Last Price = $1,000 × 91.695%

= $916.95

Last price of bond is $916.95.

So, YTM of bond is calculated in excel and screen shot provided below:

Yield to maturity of bond is 8.80%.

b.

Current Yield = Annual Coupon / Last rice

= (2 × $39.50) / $916.95

= 8.62%

Current Yield is 8.62%.