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.
Solution Preview
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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