What is the current yield for a bond that has a coupon rate of 8.3% paid...
What is the current yield for a bond that has a coupon rate of 8.3% paid annually, a par value of $1000, and 18 years to maturity? Investors require a return of 9.9% from the bond. (Round to 100th of a percent and enter as a percentage, e.g. 12.34% as 12.34)
Homework Answers
Coupon = 8.3% of 1000 = 83
Price = Coupon * [1 -1 / (1 + r)n] / r + FV / (1 + r)n
Price = 83 * [1 -1 / (1 + 0.099)18] / 0.099 + 1000 / (1 + 0.099)18
Price = 83 * [1 - 0.18283] / 0.099 + 182.82751
Price = 83 * 8.25427 + 182.82751
Price = 867.9317
Current yield = (Annual coupon / price) * 100
Current yield = (83 / 867.9317) * 100
Current yield = 9.56%
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