Description
George, Inc. bonds have a face value of $1,000 and a 9% coupon paid semiannually; the bonds mature in 8 days. What current yield would be reported in The Wall Street Journal if the yield to maturity is 7%.
Explanation & Answer
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George, Inc. bonds have a face value of $1,000 and a 9% coupon paid semiannually; the bonds mature in 8 days. What current yield would be reported in The Wall Street Journal if the yield to maturity is 7%.
Semiannual payments= 9%*1000/2 = 45
Price = 45/(1+7%/2) + 45/(1+7%/2)^2 + 45/(1+7%/2)^3 + 45/(1+7%/2)^4 �.. = 45/(1+7%/2)^16
Price =$1,120.94
current yield = 9%*1000/ 1,120.94= 8.03%
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