Question
Asked Oct 21, 2019
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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?

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Expert Answer

Step 1

Part 1:
We calculate the current yield by dividing the coupon payment by current price of the bond.

Step 2

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%

Step 3
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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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