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Calculating Bond Yields

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A bond with 15 years until maturity has a semiannual interest payment of $40. If the bond sells for its par value, what are the bond's current yield and yield to maturity values?

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Solution Summary

Solution describes the steps to calculate the current yield and YTM in the given case. Calculations are carried out with the help of suitable functions in MS Excel.

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Please refer attached file for better clarity of functions in MS Excel.

Number of coupon payments=15*2=30
Semi annual coupon payment=$40
Current price of the bond=$1,000
Par value of the bond=$1,000

Annual dividend=40*2=$80.00

Current yield=Annual dividend/Current price=80/1000=8.00%

Let us study the cash flows associated with this bond

Period # Cash Flow
0 -$1,000 Current price
1 $40 coupon ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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