A bond with a coupon rate of 12.5% per year (payable semi annually) has a life...

A bond with a coupon rate of 12.5% per year (payable semi annually) has a life of 7.5 years and a yield to maturity of 14%. What is the bond's current yield? Assume the bond is fairly priced.

Assume the bond has a par value of $1000

Semi-annual coupon -(12.5%/2)(1000) = $62.50

Semi-annual discount rate is yield to maturity/2 or 14%/2 = 7%

So, the fair bond price is:

Coupon

$62.50

rate

1000

$931.69

The annual coupon on this bond is 12.5% (1000) = $125

Current yield $125/$931.69 = 13.416%

Find the current yield of the bond in the problem above assuming the yield to maturity is 9%

PLEASE SHOW WORK IN EXCEL

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jeff jeffy answered 9 months ago

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