The current yield, the yield to maturity, the bid and ask spread, and whether the bond is a premium or discount bond Introduction: Premium bond is a bond that sells in the market above its face value. A discount bonds sells below its face value. Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond, if he or she holds the bond until the bond matures. It is also known as the yield to maturity . The current yield of the bond is the annual coupon of the bond divided by the price of the bond. Bid price refers to the price that an investor would be willing to pay to buy the security. Ask price refers to the price that a dealer would be ready to accept in exchange for the sale of bond or security instrument. Bid and ask spread refers to the difference between the bid price quoted by the buyer and the ask price quoted by the seller.

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Chapter 6, Problem 14QP

Summary Introduction

To determine: The current yield, the yield to maturity, the bid and ask spread, and whether the bond is a premium or discount bond

Introduction:

Premium bond is a bond that sells in the market above its face value. A discount bonds sells below its face value.

Yields refer to the return on the investment made by an investor. A bond yield refers to the return earned by the investor on the bond, if he or she holds the bond until the bond matures. It is also known as the yield to maturity. The current yield of the bond is the annual coupon of the bond divided by the price of the bond.

Bid price refers to the price that an investor would be willing to pay to buy the security. Ask price refers to the price that a dealer would be ready to accept in exchange for the sale of bond or security instrument. Bid and ask spread refers to the difference between the bid price quoted by the buyer and the ask price quoted by the seller.

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