Answer: the current yield of the bond = 0.06488 = 6.488%
YTM= 0.07798 = 7.798%
Explanation:
By using YTM formula below:
YTM = C + (fv - pv)/n ÷ (fv + pv)/2
C = coupon rate interest = $60
Fv = face value / par value = $1,000
Pv = price value = $75.25 discount from par value ; $(1000 - 75.25)
= $924.75
n = number of years to maturity =5
Using the YTM formula
YTM= 60 + (1,000 - 924.75)/5 ÷ (1,000 + 924.75)/2
YTM= 60 + (75.25)/5 ÷ (1,924.75)/2
YTM= (60 + 15.05) ÷ 962.375
YTM = 75.05 ÷ 962.375
YTM = 0.07798
= 7.798% (in percentage) as the yield to maturity on the bond.
The current yield =
annual coupon payment ÷ market price value
=(60 ÷ 924.75)
The current yield of the bond =
0.06488
= 6.488%
