Question

A bond has a $1,000 face value and a $900 market value. The bond pays interest semi-annually, has a yield-to-maturity of 8 percent, and matures in 5 years. What is the current yield?

Answer 1

Answer:

the current yield is 6.15%

Explanation:

Here for computing the current yield first we have to determine the monthly payment by applying the PMT formula

Given that

NPER = 5 × 2 = 10

RATE = 8% ÷ 2 = 4%

PV = $900

FV = $1,000

The formula is shown below:

= PMT(RATE;NPER;-PV;FV;TYPE)

After applying the above formula, the pmt is $27.67

Now the current yield is

= $27.67 × 2 ÷ $900

= 6.15%

Hence, the current yield is 6.15%