Question

Rolling Company bonds have a coupon rate of 6.20 percent, 25 years to maturity, and a current price of $1,196. What is the YTM? The current yield? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Answer 1

4.93% YTM and Current Yield is 5.18%

Step-by-step explanation:

n = 25

P =$1196

FV = $1000

C = 6.2*1000 =$62

YTM = ?

Formular = C + F - P/n ÷ F + P / 2

=62+1000-1196/25 ÷ 1000+1196/2

=0.0493/4.93%

The current yield is given by current price and coupon payment

62/1196 = 0.0518/5.18%

Answer 2

Yield to Maturity = 0.0493 or 4.93%

Current Yield = 0.0518 or 5.18%

Step-by-step explanation:

Assuming that the face value of the bond is $1000

The yield to maturity can be calculated using the following formula,

Yield To Maturity = [C + (F - P) / n] / (F + P) / 2

Where,

C = Coupon Payment

F = Face Value

P = Present value

N = Number of years to maturity

The coupon payment here is 1000 * 0.062 = $62

The Yield to Maturity = [62 + (1000 - 1196) / 25] / (1000 - 1196) / 2

Yield to Maturity = 0.0493 or 4.93%

Current Yield is simply calculated by dividing the coupon payment by the preset value of a bond.

Current Yield = 62 / 1196 = 0.0518 or 5.18%