A coupon paying bond pays annual interest, has a par value of $1,000, matures in 3 years, has a coupon rate of $100, and a yield to maturity of 11 percent. The current yield on this bond is: A) 4.40% B) 9.75% C) 10.25% D) 11.10% The answer is C. First we compute the current price of the bond: N=3 I/Y=11 PMT=100 FV=1000 and we get PV= 975.56 Current yield= Coupond/PV= 10.25% However, sometimes I still get confused to when we need to divide the coupon, years and YTM by 2 and when not. Can someone clarify?
It says it pays annual interest…if it was semi-annual interest the coupon would be 1/2 of the stated coupon rate and you’d use N * 2 and 1/2 of I Is that what you were asking?
Yes I knew that. But sometimes doesnt say anything about coupon frequency. In this case we must assume semi-annual coupons?
Nope. If nothing is said, assume corporate pays 2 times a year.
map1 Wrote: ------------------------------------------------------- > Nope. If nothing is said, assume corporate pays 2 > times a year. So if doesnt say anything we assume that coupons are paid semi-annually.
yes. thats how it is in US
we should do an European version of the CFA…tooo USA biased
i think you assume ANNUAL unless it says it pays semi. ??? NEED TO CLARIFY. in grad school, they assume annual, the CFA may think otherwise.
I haven’t seen a question yet where they haven’t specified annual vs. semi-annual. Does someone have one?
I’m pretty sure that questions asking about current yield, which is PMT / PV, keep in my that the actual formula calls for the ANNUAL PAYMENT / PV
I’m pretty sure I read somewhere in Schweser or the curriculum that it will clearly state if it is annual or semi annual on the exam.
and I’m in Europe, too!