A bond has a $1,000 par value, semiannual interest payments of $45, and a current market value of $1,045. The bonds mature in 11.5 years. The coupon rate is ________%, the current yield is ________%, and the yield to maturity is ________%.

Question

Quizplus · Accepted Answer

The coupon rate is the annual interest payment divided by the par value, which is $45 x 2 / $1,000 = 9.00%. The current yield is the annual interest payment divided by the current market value, which is $45 x 2 / $1,045 = 8.61%. The yield to maturity is the annual interest payment plus the change in the bond's price over the life of the bond, divided by the average of the beginning and ending market values, which is ($45 x 2 + ($1,045 - $1,000) / 11.5) / (($1,045 + $1,000) / 2) = 8.38%.

A Bond Has a $1,000 Par Value, Semiannual Interest Payments