Question

Bourdon software has 10.6 percent coupon bonds on the market with 17 years to maturity. the bonds make semiannual payments and currently sell for 108.1 percent of par. what is the current yield on the bonds?

Answer 1

The Current yield on the bonds are calculated as :

Current yield = Annual coupon payments/ Current price

Here, we assume the face value of the bond to be $1000

Annual coupon payments are 10.6% of the face value or 0.106*1000 = 106

Current price = 108.1% of the face value = 1.081* 1000 = 1081

Current Yield = 106/1081

Current Yield = 0.098057 = 9.8057%

Current Yield = 9.81% (Rounded to two decimals)