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    Bond Yield

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    An AT&T bond has 10 years until maturity, a coupon rate of 8 percent, and sells for $1,100.

    a. What is the current yield on the bond?
    80 / 1,100. = 7.2%

    b. What is the yield to maturity?

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    Solution Preview

    The YTM is the IRR of the cash flows. You have to use trial and error method to find the YTM. The cash flows are $80 per year as interest for 10 years and $1,000 as principal repayment. The YTM is the discount rate that would make the present value of the cash flows equal to the price today. We start with 7% ( since the price is ...

    Solution Summary

    The solution explains how to calculate the current yield and YTM of a bond