A bond has a coupon rate of 8.2 percent, a $1,000 par value, matures in 11.5 years, has a yield to maturity of 7.67 percent, and pays interest annually. What is the current yield?

Question

Business

Jake Davidson

27 February, 00:37

A bond has a coupon rate of 8.2 percent, a $1,000 par value, matures in 11.5 years, has a yield to maturity of 7.67 percent, and pays interest annually. What is the current yield?

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Answers (1)

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Donavan Burch · Answer 1

The current yield of the bond is 7.89%

Explanation:

The current yield is calculated by dividing the coupon payment by the price of the bond. To solve this question we first need to calculate the price of the bond. We will input the following in a financial calculator to find the price of the bond.

FV = 1,000

PMT = 0.082*1,000=82

N=11.5

I = 7.67

Compute PV=1,039

Now that we know the price we will divide the coupon payment which is 82 by the price which is 1,039.

82/1,039=0.0789=7.89%