Question

Suppose a bond with a 10% coupon rate and annual coupons, has a face value of $1,000, 5 years to maturity and is selling for $1,197.93. Please calculate 1. Yield to Maturity (please key in formulas or calculator input, without procedure, no point is granted)

Answer 1

Solution and Explanation:

1. the Yield to maturity

FV = 1,000

PMT = FV multiply with Coupon rate , PMT = 1,000 multiply with 0.1 = 100

N = 5 , PV = -1,197.93

CPT I/Y

I/Y = 5.380166647

Therefore, the Yield to maturity = 5.380166647%

Where: FV – fair value, PV – Present value

2. Current yield = Coupon payment divided by Price

Current yield = 100 divided by 1,197.93

By solving we get,

Current yield = 0.08347733173

Therefore, the Current yield = 8.347733173%