Question

Q1) A(n) 8.3% bond matures in 7 years and has a current yield (not YTM) of 6%. The bond's current trading price is $________.

Q2) A 4% coupon bond with 6 months remaining until maturity is currently trading at $997.26. Assume semi-annual coupon payments. The bond's YTM is__________%.

If you can do both, please do! Thank you.

Answer 1

Q1)	Given,
	Coupon rate	8.30%
	Maturity	7 years
	Current yield	6%
	Assuming face value of bond is $1000
	Annual coupon= $1000*8.30%
		$83
	We know,
	Current yield= Annual coupon payment/Current market price of bond
	Current market price of bond= Annual coupon payment/Current yield
		83/0.06
		$1,383.33
Q2)	Given,
	Coupon rate	4%
	Maturity	6 months
	Current Price	$997.26
	Assuming face value of bond is $1000
	Annual coupon= $1000*4%
		$40
	Semi-annual coupon= $40/2= $20
	We know,
	YTM=(C+(F-P)/n)/((F+P)/2)
	where,
	C= semi-annual coupon payments
	F= face value
	P= current price
	n= periods
	Since the bond will mature in 6 months so n will be 1
	YTM=(20+(1000-997.26)/1)/((1000+997.26)/2)
		2.28%