Dizzy Corp. bonds bearing a coupon rate of 6%, pay coupons annually, have 2 years remaining...

Dizzy Corp. bonds bearing a coupon rate of 6%, pay coupons annually, have 2 years remaining to maturity, and the yield to maturity is 11%. The current yield is ________%.

Solutions

Expert Solution

The Price of the Bond

The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.
The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.
Here, the calculation of the Bond Price using financial calculator is as follows


Variables	Financial Calculator Keys	Figures

Par Value/Face Value of the Bond [$1,000]	FV	1,000
Coupon Amount [$1,000 x 6.00%]	PMT	60
Market Interest Rate or Yield to maturity on the Bond [11.00%]	1/Y	11
Maturity Period/Time to Maturity [2 Years]	N	2
Bond Price/Current market price of the Bond	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $914.37

Current Yield on the Bond

Therefore, the Current Yield on the Bond = [Annual Coupon amount / Market Price of the Bond] x 100

= [$60 / $914.37] x 100

= 6.56%

“Hence, the Current Yield on the Bond will be 6.56%”

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

IBM’s bond has 5 years remaining to maturity. Coupons are paid semi-annually. The bonds have a...

IBM’s bond has 5 years remaining to maturity. Coupons are paid semi-annually. The bonds have a $1,000 par value, and the coupon rate is 5%. The current price of the bond is $1050. What is the yield to maturity?

Wilson Wonders’s bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have...

Wilson Wonders’s bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $900. What is their yield to maturity? Can you please assist.

Callaghan Motor’s bonds have 7 years remaining to maturity. Interest is paid annually, the bonds have...

Callaghan Motor’s bonds have 7 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 5.5 percent. The bonds have a yield to maturity of 8 percent. 1. What is the current market price of these bonds? 2. What is the current yield? 3. What is the capital gain/loss yield?

Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have...

Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10.5%. The bonds have a yield to maturity of 11%. What is the current market price of these bonds? Round your answer to the nearest cent.

Callaghan Motors’ bonds have 10 years remaining to maturity.Interest is paid annually, they have a...

Callaghan Motors’ bonds have 10 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 10.0%, and the yield to maturity is 9.5%. What is the bond’s current market price? Answer with 2 decimals ($1,000.00) Please Use Excel.

8.30 Rachette Corp. issued 20-year bonds five years ago. These bonds, which pay semiannual coupons, have...

8.30 Rachette Corp. issued 20-year bonds five years ago. These bonds, which pay semiannual coupons, have a coupon rate of 9.735 percent and a yield to maturity of 7.95 percent. a. Compute the bond’s current price. b. If the bonds can be called after five more years at a premium of 13.5 percent over par value, what is the investor’s realized yield? c. If you bought the bond today, what is your expected rate of return? Explain.

The ARA Corporation bonds have a coupon of 14%, pay interest semi-annually, and they will mature in 7 years.

a) The ARA Corporation bonds have a coupon of 14%, pay interest semi-annually, and they will mature in 7 years. Your required rate of return for such an investment is 10% annually.i) How much should you pay for a $1,000 ARA Corporation bond?ii) If you are given RM90,000, how many units of bond can you purchase?iii) What is the yearly interest income for this bond if I purchase it with RM90,000?iv) You plan to reinvest the coupon interest at 12%...

Jerome Corp. bonds have 15 years to maturity an 8.75% coupon paid semi-annually and a $1,000...

Jerome Corp. bonds have 15 years to maturity an 8.75% coupon paid semi-annually and a $1,000 par value. The bond has a 6.50% yield to maturity, but it can be called in 6 years at a price of $1,050. What is the bond's market price? What is the bond's yield to call?

The Brownstone Corporation's bonds have 4 years remaining to maturity. Interest is paid annually, the bonds...

The Brownstone Corporation's bonds have 4 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. What is the yield to maturity at a current market price of $880? Round your answer to two decimal places. % What is the yield to maturity at a current market price of $1,129? Round your answer to two decimal places. %

The Brownstone Corporations bonds have 5 years remaining to maturity. Interest is paid annually, the bonds...

The Brownstone Corporations bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. a) What is the yield to maturity at a current market price of $849? $ b) What is the yield to maturity at a current market price of $1,146? $ c) Would you pay $849 for one of these bonds if you thought that the appropriate rate of YTM was 12%? Explain.

Subjects