$1,000-par-value bond had a 5.700%
Current price quote of 97.708
Yield to maturity (YTM) of 6.034%.
A.What was the dollar price of the bond?
Dollar price of bond = Par-value bond x Price of quote
$1,000 x 0.97708= $977.08
b.What is the bond’s current yield?
Current Yield = discount (or coupon) x par-value)/Dollar price of bond
= (0.057000 x $1,000)=57
57/$977.08= 0.05833708601 or 5.83%
C.Is the bond selling at par, at a discount, or at a premium? Why?
The reason been that the bond is selling at discount due to the fact that the coupon is lower than both the current yield and yield to maturity (YTM).
d.Compare the bond’s current yield calculated in part b to its YTM and explain why they differ?
The bond’s current yield in part (b ) is lower because the coupon is so high. If the discount were lower, then the current yield would be close to or the same as the YTM.