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12 July, 10:21

Keyser Materials has 6.5 percent coupon bonds on the market with 15 years to maturity. The bonds make semiannual payments and currently sell for 102 percent of par. What is the current yield

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  1. 12 July, 10:49
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    6.37%

    Explanation:

    Par Value = $1,000

    Current Price of the bond = 102% of Par = $1,020

    Coupon rate = 6.5% annually : 2 = 3.25% Semiannually

    Coupon payment = $32.5

    Annual interest earned = $32.5 x 2 = $65

    Current yield = Annual interest earned : Current Price of the bond

    Current yield = ($65 : $1020) x 100 = 6.37%
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