Question

Keyser Materials has 6.5 percent coupon bonds on the market with 15 years to maturity. The bonds make semiannual payments and currently sell for 102 percent of par. What is the current yield

Answer 1

Answer:

6.37%

Explanation:

Par Value = $1,000

Current Price of the bond = 102% of Par = $1,020

Coupon rate = 6.5% annually ÷ 2 = 3.25% Semiannually

Coupon payment = $32.5

Annual interest earned = $32.5 x 2 = $65

Current yield = Annual interest earned ÷ Current Price of the bond

Current yield = ($65 ÷ $1020) x 100 = 6.37%