Respuesta :
The current Yield is 5.41%
Given,
Global Trade, Inc. has $1,000 face value(FV) bonds outstanding
The bonds outstanding have a market price(MP) of $1,013.
The bonds pay interest annually, mature in 11 years(n).
yield to maturity(YTM) = 5.34 percent
Current yield is the ratio of coupon payment of a bond to its current market price.
Let the Annual Coupon Payment be 'CP'
Therefore, we need to calculate the coupon payment by using the following formula:
YTM = [ CP + ( FV - MP ) / n ] / [ ( FV + MP ) / 2 ]
Now substituting the values in the above formula we get,
5.34% = [ CP + ( $1,000 - $1,013 ) / 11 ] / [ ( $1,000 + $1,013 ) / 2 ]
5.34% = [ CP + ( $1,000 - $1,013 ) / 11 ] / [ ( $1,000 + $1,013 ) / 2 ]
5.34% = [ CP - $1.18 ] / 1006.5
1,006.5 x 5.34% = CP - $1.18
53.75 = CP - 1.18
CP = 53.75 + 1.18 = $54.83 annually
Current Yield = Annual Coupon payment / Current market price
Now substituting the values in the above formula we get,
Current Yield = $54.83 / $1,013
           = 0.0541
           = 5.41%
Hence, the current yield is 5.41%.
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