Question

The 6.3 percent, semi-annual coupon bonds of PE Engineers mature in 13 years and have a price quote of 99.2. These bonds have a current yield of ________ percent, a yield to maturity of ________ percent, and an effective annual yield of ________ percent.

Answer 1

Answer:

Current yield is 6.35%

YTM is 6.40%

Effective annual yield is 6.50%

Explanation:

Current yield =coupon amount/price=6.3%*$1000/$1000*99.2%=6.35%

Yield to maturity can be computed using excel rate formula as below:

=rate(nper,pmt,-pv,fv)

nper is the number of coupon payments of the bond which is 13*2

pmt is the annual coupon=6.3%*$1000=$63/2=$31.5

pv is the current price=99.2%*$1000=$992

fv is the face value of $1000

=rate(13*2,31.5,-992,1000)=3.20%

Semiannual yield =3.20%

annual yield=3.20%*2=6.40%

effective annual yield=(1+YTM/2)^2-1

effective annual yield=(1+6.40%/2)^2-1=6.50%