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

50.1K

Verified Solution

Question

Finance

A bond with a coupon rate of 12.5% per year (payable semiannually) 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 fairlypriced.

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 aboveassuming the yield to maturity is 9%

PLEASE SHOW WORK IN EXCEL

Answer & Explanation Solved by verified expert

4.3 Ratings (744 Votes)

SEE THE IMAGE ANY See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

A bond with a coupon rate of 12.5% per year (payable semiannually) 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 fairlypriced.Assume the bond has a par value of $1000Semi-annual coupon -(12.5%/2)(1000) = $62.50Semi-annual discount rate is yield to maturity/2 or 14%/2 =7%So, the fair bond price is:Coupon$62.50rate7%n15Fv1000$931.69PVThe annual coupon on this bond is 12.5% (1000) = $125Current yield $125/$931.69 = 13.416%Find the current yield of the bond in the problem aboveassuming the yield to maturity is 9%PLEASE SHOW WORK IN EXCEL