An AT&T bond has 10 years until maturity, a coupon rate of 8 percent, and sells for $1100.
a. What is the current yield on the bond?
b. What is the yield to maturity?
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a. The current yield on the bond is the interest payment divided by the price of the bond. Assuming the face value of the bond is $1000, the interest amount is $80. The current yield is 80/1100 = 7.27%
b. The Yield to Maturity (YTM) also takes into account the principal repayment at the end of the maturity of the bond. The YTM is the discounting rate which will make ...
The solution explains how to calculate the current yield and yield to maturity (YTM) for a bond.