Question

The 6.3 percent, semi-annual coupon bonds of PE Engineers mature in 13 years and have a price of $992. These bonds have a current yield of _____ percent, a yield to maturity of _____ percent, and an effective annual yield of _____ percent.

Answer 1

Answer:

6.35, 6.39 and 6.49

Explanation:

6.3% = 0.063

yield = 0.063 ×$1,000/ 0.992 yield = 0.063 ×$1,000)/ 0.992 ×$1,000)

Current yield = 0.0635, or 6.35 percent PV = $992 = 0.063× $1,000 / 2) ×{(1 - {1 / [1 + (r / 2)]26}) / (r/ 2)} + $1,000 / [1 + (r / 2)]26 r = .0639, or 6.39 percent EAR = [1 + .0639 / 2)]2 - 1 EAR = .0649, or 6.49

Answer 2

Answer:

6.35; 6.39; 6.49

Explanation:

1.  Current yield of the bond = percentage of bond/price of bond

thus it gives = 6.3/99.2 = 0.0635 or 6.35%

2.  Yield to maturity

fv = 1000

n = 26 (2 times the number of years of maturity)

pmt = 31.50 = (.063*1000)/2

pv = -992

I/y = 3.1957 x 2= 0.0639 or 6.39%

3.  Effective annual yield

fv = 1000

n = 26

pmt = 31.957

pv = -992

i/y = 3.2417 x 2 = 6.48% or 6.49%