Show calculations A 125 bond matures in 14 years that is quo

Show calculations

A 12.5% bond matures in 14 years that is quoted for 126.75. The par value is $1,000 with a yield to maturity of 9.1%. The bond pays annually. What is the current yield?

Solution

Since the par value is 1,000

Therefore annual Coupon payment is 12.5% * 1,000 = 125

Current Bond Price = 126.75% of 1,000 = 1267.50

Current Yield = (Annual Payment) / Current bond Price

= 125 / 1267.50

= 0.0986

= 9.86%