Question

Heath Food Corporation’s bonds have 7 years remaining to maturity. The bonds have a face value of $1,000 and a yield to maturity of 8%. They pay interest annually and have a 9% coupon rate. What is their current yield?

Answer 1

Answer:

8.55%

Explanation:

For computing the current yield first we have to determine the present value by applying the present value formula which is shown below:

Given that,  

Future value = $1,000

Rate of interest = 8%

NPER = 7 years

PMT = $1,000 × 9% = $90

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

After solving this, the present value is $1,052.06

Now the current yield is

= PMT ÷ PV

= $90 ÷ $1,052.06

= 8.55%