Question

Keyser Materials has 8 percent coupon bonds on the market with 19 years to maturity. The bonds make semiannual payments and currently sell for 102 percent of par. what is the current yield on keyser materials bonds? YTM? the effective annual yield?A) 7.84%, 7.92%,7.95%B) 7.84%,7.92%,7.97%C) 7.80%,7.84%,7.92%D) 7.80%,7.92%,7.95%E) 7.84%,7.80%,7.95%

Answer 1

Answer:

E) 7.84%,7.80%,7.95%

Explanation:

Let Bond Face value = FV

                                   = 1000

Semiannual bond So nper = 19*2

                                            = 38

Coupon = 8%.  

SO PMT = 8%*1000/2

              = 40

Current rice = PV

                    = 102%*1000

                    = 1020

1. Current Yield = Coupon/Current prce

                          = (2*40)/1020

                          = 7.84%

2. YTM = 2*Rate(nper,pmt,pv,fv)

(Rate is multuplied by 2 as it is semi bond.)

            = 2*Rate(39,40,-1020,1000)

            = 7.80%

3. Effectve annual yield = (1+i/n)^n-1

where n is no of payment in a year

                                       = (1 + 8%/2)^2 - 1

                                       = 7.95%

Therefore, The current yield is 7.84%, The YTM is 7.80% and the effective annual yield is 7.95%