YIELDS
Consider a bond that has a coupon rate of 5%, with interest paid semiannually, that matures in 10 years. If the current price of the bond is $975 and the maturity value of the bond is $1,000, what is the yield to maturity and current yield on this bond?
For the yield to maturity, solve the following for r and then multiply by 2:
\$ 975=\left(\sum_{t=1}^{20} \frac{\$ 25}{(1+r)^{t}}\right)+\frac{\$ 1,000}{(1+r)^{20}}
r = 2.663%. Therefore the yield to maturity is 5.326%.
For the current yield, the annual coupon is $50, which we divide by $975. Therefore, the current yield is 5.12%.