Question

has 10 percent coupon bonds on the market with 19 years to maturity. The bonds make semiannual payments and currently sell for 107.8 percent of par. What is the current yield on the bonds?

Answer 1

4.62%

Step-by-step explanation:

we need to calculate the yield to maturity of the bond:

YTM = [coupon + (face value - market value)/n] / [(face value + market value)/2]

• coupon = $50
• face value = $1,000
• market value = $1,078
• n = 38 semiannual payments

YTM = [$50 + ($1,000 - $1,078)/38] / [($1,000 + $1,078)/2]

YTM = $47.95 / $1,039 = 4.615 ≈ 4.62%