Question

1. A corporate bond is quoted at a price of 100.73% of par with a 4.8% coupon. The bond pays interest semiannually. What is the current yield on one of these bonds? (Report answer in percentage terms and round to 2 decimal places. Do not round intermediate calculations)

2. Jade Inc. announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $0.28 per share. The following dividends will be $0.39, $0.63, and $0.76 per share annually for the following three years, respectively. After that, dividends are projected to increase by 3.1% per year.

Answer 1

Formula sheet

A	B	C	D	E	F	G
2
3		1)
4		Current yield is calculated using the following formula:
5		Current yield = Annual coupon / Current Price
6
7		Using the following data:
8		Using following data:
9		Par value (F)	1000
10		Coupon rate	0.048
11		Share Price	=D9*100.73%	=D9*100.73%
12
13		Interest is paid twice a year i.e. semiannual.
14		Semiannual coupon (C)	=D10*D9/2	=D10*D9/2
15
16		Calculation of current yield:
17		Current yield is calculated using the following formula:
18		Current yield = Annual coupon / Current Price
19
20		Using the following data
21		Annual coupon	=D14
22		Current Price of the Bond	=D11
23
24		Current yield	= Annual coupon / Current Price
25			=D21/D22	=D21/D22
26
27		Hence current yield is	=D25
28