Answer:
7.48%
Explanation:
Current yield is the ratio of coupon receipt on a bond to the current market price of the bond. It is rate of interest income received from the bond to the current market price of the bond.
Face value = F = $1,000
Coupon payment = $1,000 x 8% = $80
Selling price = P = $1,050
As we know
Current yield = Coupon payment / Current market price
8.37% = $80 / Current Market value
Current Market value = $80 / 8.37%
Current Market value = $955.79
Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity. it is long term return which is expressed in annual rate.
Number of payment = n = 13 years
Yield to maturity = [ C + ( F - P ) / n ] / [ (F + P ) / 2 ]
Yield to maturity = [ $80 + ( 1000 - 1050 ) / 15 ] / [ (1,000 + 1050 ) / 2 ]
Yield to maturity = 7.48%
