[Janelle101]

Please someone explain how do I calculate these problems manually I understand how to calculate them using excel. :o

A coupon bond pays annual interest, has a par value of $1,000, matures in 4 years, has a coupon rate of 10%, and has a yield to maturity of 12%. The current yield on this bond is?
FV = 1000, n = 4, PMT = 100, I = 12, PV=

A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has a coupon rate of 11%, and has a yield to maturity of 12%. The current yield on this bond is?
FV = 1000, n = 12, PMT = 110, I = 12, PV=

[ArcSine]

A bond's "current yield" is simply the annual interest (coupon) payment divided by the instrument's current price. For example, a bond that's trading at $950 today, and which pays $25 interest every year, has a current yield of 25 / 950 = 2.63%.

Your first step therefore is to determine the bond's annual interest payment. The first one, with a par of $1,000 and a 10% coupon, will thus pay $100 a year.

That gives you the numerator for the current yield; now you need the denominator, which is the bond's current price. For that one, just discount all the bond's remaining cash flows by its yield to maturity.

Your first bond will pay $100 each year (as determined previously) for 4 years. In addition, it will pay the maturity amount (its par value) simultaneously with its final interest payment. Therefore its remaining cash flows are 100, 100, 100, and 1,100.

Discount those four cash flows at 12%, compounded annually, to get the bond's current price...

Price = .

Follow the same procedure with your second bond, and call it a day.

[Janelle101]

Thank you so much.