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Bonds & Yields

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Bond Yields. 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?
b. What is the yield to maturity?

Bond Prices and Yields
a. Several years ago, Castles in the Sand, Inc., issued bonds at face value at a yield to maturity of 7 percent. Now, with 8 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15 percent. What has happened to the price of the bond?

b. Suppose that investors believe that Castles can make good on the promised coupon payments, but that the company will go bankrupt when the bond matures and the principal
comes due. The expectation is that investors will receive only 80 percent of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive?

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Solution Summary

The solution calcuates the bond prices, and different yields (YTM, Current yield) for the questions given.

Solution Preview

For all questions, I am assuming that the face value is $1000. If this is different then please let me know and I can change the numbers around.

Answer 1:
Time to Maturity: 10
Coupon Rate = 8%
PV of the Bond = $1,100
Face Value = $1,000
Payment = .08 X 1,000 = $80

Current Yield = Yearly ...

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