A bond with a 6% annual coupon matures in 5 years and has a price of $961. Compute the current yield for this bond. Show your answer in percent to 1 decimal place (i.e. xx.y).
A bond with a 6% annual coupon matures in 5 years and has a price of $961. Compute the current yield for this bond. Show your answer in percent to 1 decimal place (i.e. xx.y).
Given data:
annual coupon rate = 6%
years to maturity = 5
price of bond = $961
face value of bond = $1000
Generally, face value of bond is considered as $1000 or multiple of $100. Therefore we took $1000 as face value of bond eventhough it is not given in the problem.
To calculate the current yield of bond we need annual coupon payment and current price of bond.
In this step we will calculate annual coupon payment and in the next step we will calculate current yield on the bond.
we have formula for annual coupon payment.
Annual coupon payment = annual coupon rate * face value
= 6% * $1000
= 0.06 * $1000
= $60.
Therefore, the annual coupon payment is $60
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