Bonds of TLM Corporation with a par value of R1000 sell for R960, mature in five years, and have a 7% annual coupon rate paid semi-annually. Calculate the current yield and the yield to maturity What would happen to the bonds' value if inflation fell, by 3 %? Would we now have a premium or a discount bond?
Bonds of TLM Corporation with a par value of R1000 sell for R960, mature in five years, and have a 7% annual coupon rate paid semi-annually.
Calculate the current yield and the yield to maturity
What would happen to the bonds' value if inflation fell, by 3 %? Would we now have a premium or a discount bond?
Bonds are debt instruments that pay interest to investors, who essentially function as creditors to issuers. These interest payments constitute a bond's yield.
A bond's current yield is an investment's annual income, including both interest payments and dividends payments, which are then divided by the current price of the security.
Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until its maturation date.
While the current yield and yield-to-maturity (YTM) formulas both may be used to calculate the yield of a bond, each method has a different application, depending on an investor's specific goals.
The solution is provided for the first question only. Please apply again for the second question.
In the case of a Semi-annual coupon bond, the current yield will be:
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