Question

Given the following information quoted from yahoo.Finance​ (or Wall Street journal bond​ section) for today and given in the following table.

Assume that Today is February​ 15, 20092009
Type	Issue Date	Price	Coupon Rate	Maturity Date	YTM	Current Yield	Rating
Bond	Aug 2003	−	7.007.00​%	​8-15-2018	6.000​%	−	AAA

What is the price of this bond​ (assume a 1,000 par value​)? What is the current yield of this​ bond?   

​Hint: Make sure to round all intermediate calculations to at least six decimal places. Final answer to be rounded to two decimals.

What is the price in dollars of the August 2003 ​bond? ​(Do not enter a​ $ sign. Use commas to separate thousands and use two decimals. Round to the nearest cent. For​ example, if the price you obtained is​ $1,187.659321 then enter ​1,187.66​)

What is the currrent yield of the August 2003 ​bond? ​(Round to two decimal places. You must enter answer in percentage denomination. For example if the answer you obtained is 0.05247 then enter 5.25​)

Answer 1

Price of a bond is the present value of its cash flows, discounted at the YTM

Cash flows of a bond are its coupon payments and the redemption value at maturity

The coupon payments are coupon rate * face value = 7% * $1,000 = $70

The first coupon payment is 0.5 years from today, the second is 1.5 years from today, and so on until 9.5 years from today, when the last coupon payment occurs along with redemption of the bond.

Present value = future cash flow / (1 + discount rate)^{number of years}

The present values, and price of bond are calculated as below :

Price of bond is $1,105.34

Current yield = coupon payment / bond price = 70 / 1105.34 = 0.0633, or 6.33%