kim226

When a bond's coupon rate is greater than its current yield, and its current yield is greater than its yield to maturity, the bond is a:

A) discount bond.

B) par value bond.

C) premium bond.

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For a premium bond, coupon rate > current yield > yield to maturity.
For a par bond, coupon rate = current yield = yield to maturity.
For a discount bond, coupon rate < current yield < yield to maturity.

kim226

A coupon bond pays annual interest, has a par value of $1,000, matures in 4 years, has a coupon rate of $100, and a yield to maturity of 12%. The current yield on this bond is:

A) 10.65%.

B) 11.25%.

C) 9.50%.

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FV = 1,000; N = 4; PMT = 100; I = 12; CPT → PV = 939.25.
Current yield = coupon / current price
100 / 939.25 × 100 = 10.65

kim226

An 11% coupon bond with annual payments and 10 years to maturity is callable in 3 years at a call price of $1,100. If the bond is selling today for 975, the yield to call is:

A) 9.25%.

B) 10.26%.

C) 14.97%.

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PMT = 110, N = 3, FV = 1,100, PV = 975
Compute I = 14.97

kim226

Which of the following statements concerning the current yield is CORRECT? It:

A) is of great interest to aggressive bond investors seeking capital gains.

B) is of great interest to conservative bond investors seeking current income.

C) can be deteremined by dividing coupon income by the face value of a bond.

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The current yield of a bond only considers interest income. The capital gains/losses and reinvestment income are not considered.  The formula for current yield is the annual cash coupon payment divided by the bond price.

kim226

A 15-year, 10% annual coupon bond is sold for $1,150. It can be called at the end of 5 years for $1,100. What is the bond's yield to call (YTC)?

A) 8.0%.

B) 9.2%.

C) 8.4%.

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Input into your calculator:
N = 5; FV = 1,100; PMT = 100; PV = -1,150; CPT → I/Y = 7.95%.

kim226

A 20-year, 9% semi-annual coupon bond selling for $1,000 offers a yield to maturity of:

A) 11%.

B) 9%.

C) 10%.

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N = (20 × 2) = 40
pmt = 90/2 = 45
PV = -1000
FV = 1000
cpt i = ? = 4.5×2 = 9%

kim226

A 20-year, $1,000 face value, 10% semi-annual coupon bond is selling for $875. The bond's yield to maturity is:

A) 5.81%.

B) 11.43%.

C) 11.62%.

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N = 40 (2 × 20 years); PMT = 50 (0.10 × 1,000) / 2; PV = -875; FV = 1,000; CPT → I/Y = 5.811 × 2 (for annual rate) = 11.62%.

kim226

If a $1,000 bond has a 14% coupon rate and a current market price of 950, what is the current market yield?

A) 15.36%.

B) 14.74%.

C) 14.00%.

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(0.14)(1,000) = $140 coupon
140/950 × 100 = 14.74

kim226

A coupon bond which pays interest $100 annually has a par value of $1,000, matures in 5 years, and is selling today at a $72 discount from par value. The yield to maturity on this bond is:

A) 7.00%.

B) 12.00%.

C) 8.33%.

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PMT = 100
FV = 1,000
N = 5
PV = 1,000 − 72 = 928
compute I = 11.997% or 12.00%

kim226

A 12% coupon bond with semiannual payments is callable in 5 years. The call price is $1,120. If the bond is selling today for $1,110, what is the yield-to-call?

A) 11.25%.

B) 10.95%.

C) 10.25%.

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PMT = 60; N = 10; FV = 1,120; PV = 1,110; CPT → I = 5.47546
(5.47546)(2) = 10.95