A 12-year bond pays an annual coupon of 10 percent

Finance Aug 12, 2020

A 12-year bond pays an annual coupon of 10 percent. The bond has a yield to maturity of 9.5 percent and a par value of $1,000. What is the bond's current yield

Expert Solution

First we have to calculate price of the bond

Number of periods remaining = 12

Coupon = 1000*10% = $100

Yield to maturity = 9.5%

Future value = 1000

Using financial calculator

[N = 12 ; I/Y = 9.5% ; PV = ? ; PMT = 100 ; FV = 1000]

Compute for PV

Price of the bond (PV) = 1034.92

Current yield = coupon / current price

= 100 / 1034.92

= 9.66%(rounded to two decimals)

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