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Social ScienceBrandt Corporation's 30-year bond has 10 years left until maturity. The 8% coupon bond has a par value of $1000 and pays interest semiannually. The bond currently sells for $1089.84.What is the bond's current yield?What is the bond's yield to maturity?
Brandt Corporation's 30-year bond has 10 years left until maturity. The 8% coupon bond has a par value of $1000 and pays interest semiannually. The bond currently sells for $1089.84.
What is the bond's current yield?
What is the bond's yield to maturity?
Expert Answer
Part 1:
We calculate the current yield by dividing the coupon payment by current price of the bond.
Given that:
Face value is $1000 and the current value of the bond is $1089.84
Annual coupon rate is 8%, as the interest is paid semiannually, the semiannual coupon rate is 8% divided by 2 that is equal to 4%
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Semiannual coupon payment-(Face value)x(Semiannual coupon rate) =1000x4%-40 Current yield-(Semiannual coupon payment) (Current bond price) (40) (1089.84) -0.036702635 Annual yield=2x(Semiannual yield) -2x(0.036702635) 0.07340527 or 7.34% (Rounded to two decimal places)
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