Today is a day in May 2525 and a bond with an coupon rate of 8.0% just yesterday

Question

Today is a day in May 2525 and a bond with an coupon rate of 8.0% just yesterday paid a coupon. The bond matures in November 2540 and its quoted bond price is 118.03 percent of par (semiannual compounding). Find the yield to maturity (YTM) and current yield.

Select one:

a. The current yield is 5.86% and the YTM is 6.18%

b. The current yield is 3.39% and the YTM is 3.09%

c. The current yield is 6.78% and the YTM is 3.09%

d. The current yield is 6.78% and the YTM is 6.18%

e. The current yield is 3.39% and the YTM is 6.18%

Explanation / Answer

Correct answer is answer d

Hope this helps

Current yield =(0.08*1000)/(1.1803*1000) 6.78% YTM = C + (F-P)/n / (F+P )/ 2 =80+((1000-1180.3)/15) / (1000 + 1180.3)/2 = 6.18% approx C = Interest Payment F = Face value P = Bond Price n = number of payments

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