To discuss: The current yield
Introduction:
A bond refers to the debt securities issued by the governments or corporations for raising capital. The borrower does not return the face value until maturity. However, the investor receives the coupons every year until the date of maturity.
The current yield of the bond is the annual coupon of the bond divided by the price of the bond.
Answer to Problem 7.1CTF
The current yield of the bond is 7.76%.
Explanation of Solution
Given information:
The face value of an 8 percent bond is $1,000. The coupon payment is semiannual. The
The formula to calculate annual coupon payment:
The formula to calculate the current yield:
Compute the annual coupon payment:
Hence, the annual coupon payment is $80.
Compute the current yield:
Hence, the current yield is 7.76%.
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Chapter 7 Solutions
Fundamentals of Corporate Finance
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