Question

treasury notes and bonds. Use the information in the following table:

Assume a $100,000 par value. What is the yield to maturity of the August 2002 Treasury bond with semiannual payment? Compare the yield to maturity and the current yield. How do you explain this relationship?   What is the yield to maturity of the August 2002 Treasury bond?   

  

Today is February 15, 2008
Type	Issue Date	Price (per $100 parvalue)	Coupon Rate	Maturity Date	YTM.	Current Yield	Rating
Bond	Aug 2002	78.03	3.00%	8-15-2012	–	3.845%	AAA

Answer 1

Yield to maturity= 9.052121%

Current yield= 3.845%

Calculation as below:

Yield to maturity (YTM) is the rate of interest (discount rate) at which present values of future cash inflows become equal to the present market value (price) of the bond. YTM is the expected rate of income (interest) that the investor receives out of this investment and it is dependant on the risk involved, in addition to the other factors.

YTM is higher than the coupon rate since the price is below par value (at a discount).

Current yield is the rate of return (annualized) currently available on the price. This is derived from the interest (coupon) received as percentage of price. Present value of redemption value is not factored in.