Q 20. Hacker Software has 6.2% coupon bonds on the market with 9 years to maturity. The bonds make semi–
annual payments and currently sell for 104 percent of par. What is the current yield on the bonds? What is the
YTM? What is the effective annual yield?
Assume the par value is $1000.
=> The annual coupon: 1,000 x 6.2% = 62
=> the coupon each period: 1,000*6.2% = 31
2
The number of period: n= 9×2 = 18
The currently sell price: PV = 104%*1000 = $1040
=> The current yield = 62/1040 = 5.96%
We calculate the semi-annual rate (r) :
31/r*(1 – (1/(1 + 𝑟)^18) + 1000/((1 + 𝑟)^18) = $1,040
=>r= 2.81%
=>YTM = 2r = 5.62%
Hence, the effective annual rate = (1+ 2.81%)2 – 1 = 5.69%
Q 30. The YTM on a bond is the interest rate you earn on your investment if the interest rates don’t
change. If you actually sell the bond before it matures, your realized return is known as the holding
period yield (HPY)
a. Suppose that today you buy an annual coupon of 4.9 percent for $930. The bond has 10 years to
