Answer:
Current Yield of bond is 3.53%
Explanation:
Current yield is the ratio of coupon payment of a bond to its current market price.
Formula for Current yield is as follow
Current Yield = Annual Coupon payment / Current market price
First we need to calculate the coupon payment by using following formula
YTM = [ C + ( F - P ) / n ] / [ ( F + P ) / 2 ]
5.8%/2 = [ C + ( $1,000 - $1,150 ) / 16 ] / [ ( $1,000 + $1,150 ) / 2 ]
2.9% = [ C + ( $1,000 - $1,150 ) / 16 ] / [ ( $1,000 + $1,150 ) / 2 ]
2.9% = [ C - $9.375 ] / $1,075
1,075 x 2.9% = C - $9.375
31.175 = C - 9.375
C = 31.175 + 9.375 = $40.55 annually
Current Yield = Annual Coupon payment / Current market price
Current Yield = $40.55 / $1,150 = 0.0353 = 3.53%
