Given: a $1000 par bond. Coupon = 6%, 30 year bond. After 5 years, current interest...

Given: a $1000 par bond. Coupon = 6%, 30 year bond.

After 5 years, current interest rates are 4%.

1) Calculate the current price of the bond:

2) Calculate the current yield:

3) Define YTM:

Expert Solution

Calculate the current price of the bond as follows:

Therefore, the current price of the bond is $1,312.44.

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Calculate the current yield as follows:

Current yield = ( Coupon / Current price)

= ($1,000*6%) / $1,312.44

= 4.57%

Therefore, the current yield is 4.57%.

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YTM : YTM is known as Yield to maturity. It is the return earned by the investor by holding the bonds untill the maturity of the bond.

jeff jeffy answered 1 year ago

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