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, 2015.

Company (Ticker)

Coupon

Maturity

Last Price

Last Yield

EST Vol (000s)

IOU (IOU)

7.0

Apr 15, 2031

103.26

??

1,831

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.)

YTM

%

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

%

Answer 1

a)
FV = $1000
PV = $1000 * 103.26% = $1032.6
PMT = $1000 * 7% = 70
Nper = 2031 - 2015 = 16

Yield to maturity can be calculated by using the following excel formula:
=RATE(nper,pmt,pv,fv)
=RATE(16,70,-1032.6,1000)
= 6.66%

Yield to maturity = 6.66%

b)
Current yield = Annual coupon payment / Current price
= $70 / $1032.6
= 6.78%

Current yield = 6.78%