Question

Suppose the following bond quotes for IOU Corporation appear in the financial page of today’s newspaper. Assume the bond has semiannual payments, a face value of $2,000 and the current date is April 19, 2018. Company (Ticker) Coupon Maturity Last Price Last Yield EST Vol (000s) IOU (IOU) 5.7 Apr 19, 2034 108.96 ?? 1,827 a. What is the yield to maturity of the bond? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the current yield?

Answer 1

Answer:

a. 4.89%

b. 5.23%

Explanation:

We use the rate formula which is shown in the attached spreadsheet

Given that,  

Present value = $2,000 × 108.96% = $2,179.20

Future value or Face value = $2,000  

PMT = $2,000 × 5.7% ÷ 2 = $57

NPER = 16 years × 2 = 32 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after solving this,  

a. The yield to maturity of the bond is 4.89%

b. The current yield would be

= 57 × 2 ÷ $2,179.20

= 5.23%