Connect M MLK Holidayjwilson14 L RecentGoogle Drive Un

Connect × \\ M MLK Holiday-jwilson14 × \\ L Recent-Google Drive × \\ Untitled docurment-Go x \\ e Search Textbook Solutio , C0 https://newconnect.mheducation.com/flow/connect.html Apps D PowerTeacherMisc D AP GovernmentSt co D Work l Schedule Access Gmail % Mustang Public Schc D MACU Music e Final Cut Pro X102E D ASOIAF Human Geo #general 99 Talk Simple Team C D Library Chapter 5 Problems Saved Help Save & Exit Submit Check my work 6 Suppose the following bond quote for IOU Corporation appears in the financial page of today\'s newspaper. Assume the bond has a face value of $1,000 and the current date is April 15, 2016 EST Vol Company (Ticker) Coupon IOU (IOU) 7.4 Last 10 points Maturity Apr 15, 2029 Last Price Yield (000s) 103.469 1,833 eBook Print References What is the yield to maturity of the bond? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) YTM What is the current yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, % e.g., 32.16.) Current yield | | % Mc Graw Hill Prev 6 of 6 Next > Education

Solution

Answer a.

Face Value = $1,000.00
Current Price = 103.469%*$1,000
Current Price = $1,034.69
Annual Coupon Rate = 7.40%
Semi-annual Coupon Rate = 3.70%
Semi-annual Coupon = 3.70%*$1,000 = $37.00
Time to Maturity = 13 years

Let Semi-annual YTM be i%

$1,034.69 = $37.00 * PVIFA(i%, 26) + $1,000 * PVIF(i%, 26)

Using financial calculator:
N = 26
PV = 1034.69
FV = 1000
PMT = 37
I/Y = 3.49%

Semi-annual YTM = 3.49%
Annual YTM = 3.49% * 2 = 6.98%

Answer b.

Current Yield = Annual Coupon / Current Price
Current Yield = $74.00 / $1,034.69
Current Yield = 7.15%