Determine the current yield AND the approximate yield tomaturity for a 6.2%, $800,000 coupon bond...

Determine the current yield AND the approximate yield to maturity for a 6.2%, $800,000 coupon bond selling for $822,400 and maturing in 20 years.

Solutions

Expert Solution

a.Information provided:

Future value= $800,000

Present value= $822,400

Time= 20 years

Coupon rate= 6.2%

Coupon payment= 0.062*$800,00= $49,600

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 800,000

PV= -822,400

N= 20

PMT= 49,600

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 5.9567.

Therefore, the yield to maturity is 5.96%.

b.Current yield is calculated using the below formula:

Current Yield= Annual interest/ Current price

= $49,600 / $822,400

= 0.0603*100

= 6.03%.

jeff jeffy answered 1 year ago

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