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Heath Food Corporation’s bonds have 6 years remaining to maturity. The bonds have a face value...

Heath Food Corporation’s bonds have 6 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 6% coupon rate. What is their current yield? Round your answer to two decimal places.

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Expert Solution

Solution :

As per the Information given in the question we have

a. Coupon rate = 6 %        ;        b. Par Value = $ 1,000

c. Annual coupon Payment = $ 1,000 * 6 % = $ 60

d. Current Price of the bond = $ 788.4731

(Please find the attached screenshot of the excel sheet containing the detailed calculation for the price of the bond )

We know that current yield = ( Annual coupon payment / Current Price of the bond )

Thus applying the above values in the formula for current yield we have

= $ 60 / $ 788.4731

= 7.6096 %

= 7.61 % ( when rounded off to two decimal places)

Thus the Current yield of the bond = 7.61 %

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

jeff jeffy answered 9 months ago
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