Question

A bond has $1,000 face value, coupon rate of 3.5%, and yield to maturity (YTM) of 3.7%. It will mature in 17 years and coupons are paid annually. What is this bond’s current yield?

Answer 1

	Particulars	Cash flow	Discount factor	Discounted cash flow
	present value Interest payments-Annuity (3.7%,17 periods)	$                         35.00	12.45368	$                435.88
	Present value of bond face amount -Present value (3.7%,17 periods)	$                    1,000.00	0.53921	$                539.21
A	Bond price			$                975.09
	Face value			$             1,000.00
	Premium/(Discount)			$                 (24.91)
	Interest amount:
	Face value	1,000
	Coupon/stated Rate of interest	3.500%
	Frequency of payment(once in)	12 months
B	Interest amount	1000*0.035*12/12=		$                  35.00
	Present value calculation:
	yield to maturity/Effective rate	3.70%
	Effective interest per period(i)	0.037*12/12=		3.700%
	Number of periods:
Ref	Particulars	Amount
a	Number of interest payments in a year	1
b	Years to maturiy	17.0
c=a*b	Number of periods	17
A/B	Current yield			3.59%

Current yield is 3.9%