help in homework

New User?

Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Assume you purchased a corporate bond at its current market price of $835 on January 1, 2017

Assume you purchased a corporate bond at its current market price of $835 on January 1, 2017

Accounting

Assume you purchased a corporate bond at its current market price of $835 on January 1, 2017. It pays 12.00 percent interest and will mature on December 31, 2026, at which time the corporation will pay you the face value of $1,000.

 

a. Determine the current yield on your bond investment at the time of purchase. (Do not round intermediate calculations and round your final answer to 1 decimal place. Omit the "%" sign in your response.)

  

Current yield           %

 

b. Determine the yield to maturity on your bond investment at time of purchase. (Do not round intermediate calculations and round your final answer to 1 decimal place. Omit the "%" sign in your response.)

  

Yield to maturity           %

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

Given,

Face Value = $1,000

Market Price = $835

Interest = 12%

Annual Coupon = 1000* 12%

= 120

Years to Maturity = 10

 

So,

1.) Computation of current yield;

Current Yield =Annual Coupon / Market Price

= (120/ 835)

= 0.143713 or 14.37%

 

 

2.)

Computation of yield to maturity;

Yield To maturity =((Coupon payment +(Face Value -Price)/years to maturity)) / (face Value + Price)/ 2

= ((120+ (1000- 835) / 10) / (1000+ 835)/ 2

= 136.5/ 917.5

= 0.148774 or 14.88%

Sitejabber (5.0)

BBC (5.0)

Trustpilot (4.9)

Google (5.0)