Question

today a bond has a coupon rate of 12.1%, par value of $1000, YTM of 8.20%, and semi-annual coupons with the next coupon due in 6 months. one year ago, the bonds price was $1,281.05 and the bond had 5 years until maturity. what is the current yield of the bond today?

Answer 1

To calculate the current yield of a bond, divide the annual coupon interest payment by the current market price of the bond. Given the bond's details, the current yield is 5.64%.

Step-by-step explanation:

To calculate the current yield of a bond, we need to divide the annual coupon interest payment by the current market price of the bond.

Given that the bond has a coupon rate of 12.1% with a par value of $1000 and semi-annual coupons, the coupon interest payment would be $1000 * 12.1% / 2 = $60.50.

The current market price of the bond can be calculated by discounting the future cash flows of the bond using the yield to maturity (YTM). In this case, we have 5 years until maturity and a YTM of 8.20%.

Using a financial calculator or spreadsheet, we can calculate the bond's current market price to be $1,073.11.

Therefore, the current yield of the bond would be $60.50 / $1073.11

= 5.64%.