Question

Bourdon Software has 8.6 percent coupon bonds on the market with 20 years to maturity. The bonds make semiannual payments and currently sell for 107.1 percent of par.

What is the current yield on the bonds? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
What is the YTM?
What is the effective annual yield?

Answer 1

The current yield of Bourdon Software's 8.6% coupon bonds is 8.03%. Calculating the Yield to Maturity (YTM) and effective annual yield would involve detailed financial computations based on bond price, payment frequency, and maturity.

Step-by-step explanation:

To calculate the current yield on Bourdon Software's bonds, we use the annual coupon payment divided by the current market price of the bond. Given that the bonds have a coupon rate of 8.6% and they sell for 107.1% of par, the annual coupon payment is $86 (8.6% of the $1000 par value). The price of the bond is $1071 (107.1% of $1000). Thus, the current yield is $86 / $1071 = 0.0803, or 8.03% when converted to a percentage.

Calculating the Yield to Maturity (YTM) and effective annual yield would require more detailed financial calculations involving the current price of the bond, coupon rate, maturity, and the frequency of coupon payments. Such calculations commonly use financial calculators or software and are beyond the scope of this explanation without additional information.