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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 7%
n 15
Fv 1000
$931.69 PV
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 1 year ago
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