The current yield and yield to maturity of 2041 maturity bond. Yield to maturity (YTM) is the overall return anticipated on a bond throughout its maturity period and it is considered as a long-term bond yield and represented as an annual rate.

Question

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Answer 1

Question

Chapter 6, Problem 1QP

a)

Summary Introduction

To determine: The current yield and yield to maturity of 2041 maturity bond.

Yield to maturity (YTM) is the overall return anticipated on a bond throughout its maturity period and it is considered as a long-term bond yield and represented as an annual rate.

a)

Expert Solution

Explanation of Solution

Computation of current yield is as follows:

The bond providing an interest of 4.75% and the annual interest will be $47.50 ($1,000×4.75%) and the selling price of bond is $1,273.047. therefore, the current yield is as follows:

Current yield = Annual interestBond price=$47.50$1,273.047=0.0373 or 3.73%

Therefore, the yield to maturity is 3.084% and current yield is 3.73%.

b)

Summary Introduction

To determine: The statement that “the current yield is less than the yield to maturity whenever the bond price is greater than the face value”. True or false.

b)

Expert Solution

Explanation of Solution

False, since the bond is selling at premium the yield to maturity on the bond is lower than that of the current yield. While reaching the maturity period the holder will give only $1,000 face value, after deducting the total return on investment.

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Answer 2

Question

Chapter 6, Problem 1QP

a)

Summary Introduction

To determine: The current yield and yield to maturity of 2041 maturity bond.

Yield to maturity (YTM) is the overall return anticipated on a bond throughout its maturity period and it is considered as a long-term bond yield and represented as an annual rate.

a)

Expert Solution

Explanation of Solution

Computation of current yield is as follows:

The bond providing an interest of 4.75% and the annual interest will be $47.50 ($1,000×4.75%) and the selling price of bond is $1,273.047. therefore, the current yield is as follows:

Current yield = Annual interestBond price=$47.50$1,273.047=0.0373 or 3.73%

Therefore, the yield to maturity is 3.084% and current yield is 3.73%.

b)

Summary Introduction

To determine: The statement that “the current yield is less than the yield to maturity whenever the bond price is greater than the face value”. True or false.

b)

Expert Solution

Explanation of Solution

False, since the bond is selling at premium the yield to maturity on the bond is lower than that of the current yield. While reaching the maturity period the holder will give only $1,000 face value, after deducting the total return on investment.

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Answer 3

Question

Chapter 6, Problem 1QP

a)

Summary Introduction

To determine: The current yield and yield to maturity of 2041 maturity bond.

Yield to maturity (YTM) is the overall return anticipated on a bond throughout its maturity period and it is considered as a long-term bond yield and represented as an annual rate.

a)

Expert Solution

Explanation of Solution

Computation of current yield is as follows:

The bond providing an interest of 4.75% and the annual interest will be $47.50 ($1,000×4.75%) and the selling price of bond is $1,273.047. therefore, the current yield is as follows:

Current yield = Annual interestBond price=$47.50$1,273.047=0.0373 or 3.73%

Therefore, the yield to maturity is 3.084% and current yield is 3.73%.

b)

Summary Introduction

To determine: The statement that “the current yield is less than the yield to maturity whenever the bond price is greater than the face value”. True or false.

b)

Expert Solution

Explanation of Solution

False, since the bond is selling at premium the yield to maturity on the bond is lower than that of the current yield. While reaching the maturity period the holder will give only $1,000 face value, after deducting the total return on investment.

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Answer 4

Question

Chapter 6, Problem 1QP

a)

Summary Introduction

To determine: The current yield and yield to maturity of 2041 maturity bond.

Yield to maturity (YTM) is the overall return anticipated on a bond throughout its maturity period and it is considered as a long-term bond yield and represented as an annual rate.

a)

Expert Solution

Explanation of Solution

Computation of current yield is as follows:

The bond providing an interest of 4.75% and the annual interest will be $47.50 ($1,000×4.75%) and the selling price of bond is $1,273.047. therefore, the current yield is as follows:

Current yield = Annual interestBond price=$47.50$1,273.047=0.0373 or 3.73%

Therefore, the yield to maturity is 3.084% and current yield is 3.73%.

b)

Summary Introduction

To determine: The statement that “the current yield is less than the yield to maturity whenever the bond price is greater than the face value”. True or false.

b)

Expert Solution

Explanation of Solution

False, since the bond is selling at premium the yield to maturity on the bond is lower than that of the current yield. While reaching the maturity period the holder will give only $1,000 face value, after deducting the total return on investment.

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Answer 5

Chapter 6, Problem 1QP

a)

Summary Introduction

To determine: The current yield and yield to maturity of 2041 maturity bond.

Yield to maturity (YTM) is the overall return anticipated on a bond throughout its maturity period and it is considered as a long-term bond yield and represented as an annual rate.

a)

Expert Solution

Explanation of Solution

Computation of current yield is as follows:

The bond providing an interest of 4.75% and the annual interest will be $47.50 ($1,000×4.75%) and the selling price of bond is $1,273.047. therefore, the current yield is as follows:

Current yield = Annual interestBond price=$47.50$1,273.047=0.0373 or 3.73%

Therefore, the yield to maturity is 3.084% and current yield is 3.73%.

b)

Summary Introduction

To determine: The statement that “the current yield is less than the yield to maturity whenever the bond price is greater than the face value”. True or false.

b)

Expert Solution

Explanation of Solution

False, since the bond is selling at premium the yield to maturity on the bond is lower than that of the current yield. While reaching the maturity period the holder will give only $1,000 face value, after deducting the total return on investment.

Answer 6

Chapter 6, Problem 1QP

a)

Summary Introduction

To determine: The current yield and yield to maturity of 2041 maturity bond.

Yield to maturity (YTM) is the overall return anticipated on a bond throughout its maturity period and it is considered as a long-term bond yield and represented as an annual rate.

a)

Expert Solution

Explanation of Solution

Computation of current yield is as follows:

The bond providing an interest of 4.75% and the annual interest will be $47.50 ($1,000×4.75%) and the selling price of bond is $1,273.047. therefore, the current yield is as follows:

Current yield = Annual interestBond price=$47.50$1,273.047=0.0373 or 3.73%

Therefore, the yield to maturity is 3.084% and current yield is 3.73%.

Answer 7

Chapter 6, Problem 1QP

a)

Summary Introduction

To determine: The current yield and yield to maturity of 2041 maturity bond.

Yield to maturity (YTM) is the overall return anticipated on a bond throughout its maturity period and it is considered as a long-term bond yield and represented as an annual rate.

Answer 8

a)

Expert Solution

Explanation of Solution

Computation of current yield is as follows:

The bond providing an interest of 4.75% and the annual interest will be $47.50 ($1,000×4.75%) and the selling price of bond is $1,273.047. therefore, the current yield is as follows:

Current yield = Annual interestBond price=$47.50$1,273.047=0.0373 or 3.73%

Therefore, the yield to maturity is 3.084% and current yield is 3.73%.

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

b)

Summary Introduction

To determine: The statement that “the current yield is less than the yield to maturity whenever the bond price is greater than the face value”. True or false.

b)

Expert Solution

Explanation of Solution

False, since the bond is selling at premium the yield to maturity on the bond is lower than that of the current yield. While reaching the maturity period the holder will give only $1,000 face value, after deducting the total return on investment.

Answer 13

b)

Summary Introduction

To determine: The statement that “the current yield is less than the yield to maturity whenever the bond price is greater than the face value”. True or false.

Answer 14

b)

Expert Solution

Explanation of Solution

False, since the bond is selling at premium the yield to maturity on the bond is lower than that of the current yield. While reaching the maturity period the holder will give only $1,000 face value, after deducting the total return on investment.