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30 January, 08:00

A corporate bond is quoted at a price of 103.16 ($1031.60) and carries a 5.20 percent coupon. The bond pays interest semiannually. What is the current yield on one of these bonds

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Answers (2)
  1. 30 January, 10:04
    0
    5.04%

    Explanation:

    Current yield is the ratio of coupon payment of a bond to its current market price. It is calculated by using coupon payment and the current market value of the bond.

    Coupon Payment = $1,000 x 5.2% = $52

    Formula for Current yield is as follow

    Current Yield = Annual Coupon Payment / Current Market Price

    Current Yield = $52 / $1,031.60

    Current Yield = 5.04%
  2. 30 January, 11:45
    0
    6.30 percent

    Explanation:

    Base on the scenario been described in the question. For we to calculate the current yield of one of the bond, we have to use the following procedure

    Current yield = (0.065*$1,000) / (1.0316 * $ 1,000)

    Current yield = 65 / 1,031.6

    Current yield = 0.063008918185343 * 100%

    Current yield = 6.30percent approximately.
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