A 13% semiannual coupon bond matures in 8 years. The bond has a face value of $1,000 and is currently trading at $1,174. Calculate the bond’s current yield and YTM.
Calculation of Current Yield:
Face Value = $1,000
Current Price = $1,174
Annual Coupon Rate = 13.00%
Annual Coupon = 13.00% * $1,000
Annual Coupon = $130
Current Yield = Annual Coupon / Current Price
Current Yield = $130 / $1,174
Current Yield = 0.1107 or 11.07%
Calculation of Yield to Maturity:
Face Value = $1,000
Current Price = $1,174
Annual Coupon Rate = 13.00%
Semiannual Coupon Rate = 6.50%
Semiannual Coupon = 6.50% * $1,000
Semiannual Coupon = $65
Time to Maturity = 8 years
Semiannual Period = 16
Let Semiannual YTM be i%
$1,174 = $65 * PVIFA(i%, 16) + $1,000 * PVIF(i%, 16)
Using financial calculator:
N = 16
PV = -1174
PMT = 65
FV = 1000
I = 4.905%
Semiannual YTM = 4.905%
Annual YTM = 2 * 4.905%
Annual YTM = 9.81%
A 13% semiannual coupon bond matures in 8 years. The bond has a face value of...