Question

In: Finance

Consider a 19-year bond with 13 percent annual coupon payments. The market rate (YTM) is 6.6...

Consider a 19-year bond with 13 percent annual coupon payments. The market rate (YTM) is 6.6 percent for this bond. The current yield of the bond is _______ percent. Answer it in percentage without the % sign, and round it to two decimal place, e.g., 5.69.

Expert Solution

Information provided:

Par value= future value= $1,000

Time= 19 years

Yield to maturity=6.60%

Coupon rate= 13

Coupon payment= 0.13*1,000= $130

The price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 19

PMT= 130

I/Y= 6.60

Press the CPT key and PV to compute the present value.

The value obtained is 1,681.7920.

Therefore, the price of the bond is $1,681.79.

Current yield is calculated by using the below formula:

Current Yield= Annual interest/Current price

= $130/$1,681.79

= 0.0773*100

= 7.73.

Therefore, the current yield of the bond is 7.73 percent.

In case of any query, kindly comment on the solution

jeff jeffy answered 1 month ago

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