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18 April, 10:04

Rolling Company bonds have a coupon rate of 6.20 percent, 25 years to maturity, and a current price of $1,196. What is the YTM? The current yield? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

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  1. 18 April, 10:42
    0
    4.93% YTM and Current Yield is 5.18%

    Explanation:

    n = 25

    P = $1196

    FV = $1000

    C = 6.2*1000 = $62

    YTM = ?

    Formular = C + F - P/n : F + P / 2

    =62+1000-1196/25 : 1000+1196/2

    =0.0493/4.93%

    The current yield is given by current price and coupon payment

    62/1196 = 0.0518/5.18%
  2. 18 April, 11:53
    0
    Yield to Maturity = 0.0493 or 4.93%

    Current Yield = 0.0518 or 5.18%

    Explanation:

    Assuming that the face value of the bond is $1000

    The yield to maturity can be calculated using the following formula,

    Yield To Maturity = [C + (F - P) / n] / (F + P) / 2

    Where,

    C = Coupon Payment

    F = Face Value

    P = Present value

    N = Number of years to maturity

    The coupon payment here is 1000 * 0.062 = $62

    The Yield to Maturity = [62 + (1000 - 1196) / 25] / (1000 - 1196) / 2

    Yield to Maturity = 0.0493 or 4.93%

    Current Yield is simply calculated by dividing the coupon payment by the preset value of a bond.

    Current Yield = 62 / 1196 = 0.0518 or 5.18%
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