Fundamentals of Financial Manageme...
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Fundamentals of Financial Manageme...
PRICE AND YIELD An 8% semiannual coupon bond matures in 5 years. The bond has a face value of $1,000 and a current yield of 8.21%, What are the bond’s price and YTM? (Hint: Refer to Footnote 7 for the definition of the current yield and to table 7.1.)
To calculate: Price of bond and yield to maturity (YTM).
Yield to Maturity: It refers to the rate of interest earned till the maturity of the bond by the bond holder.
Given,
Semiannual coupon rate is 8%.
Current yield is 8.21%.
Par value of bond is $1,000.
Maturity is after 5 years.
Formula to calculate current yield,
Substitute 8.21% for current yield and $80 for annual coupon payment.
Yield to maturity (YTM) can be calculated through value of bond
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