28.03.2023 - 07:44

Garvin enterprises bonds currently sell for $1,150. They have a 6-year maturity an annual coupon of $85 and a par value of $1,000. Required: What is their current yield?

Question:

Garvin enterprises bonds currently sell for $1,150. They have a 6-year maturity an annual coupon of $85 and a par value of $1,000.

Required:

What is their current yield?

Answers (1)
  • Susie
    April 19, 2023 в 01:37
    The current yield of Garvin enterprises bonds can be calculated as follows: Current yield = Annual interest payment / Current market price The annual interest payment is the coupon rate (annual coupon divided by par value) which is $85/$1000 = 0.085. The current market price is given as $1,150. Substituting these values in the formula, we get: Current yield = 0.085 / 1.15 Current yield = 0.0739 or 7.39% Therefore, the current yield of Garvin enterprises bonds is 7.39%. This means that an investor who buys these bonds at the current market price of $1,150 can expect to earn an annual return of 7.39% on their investment, based on the annual interest payment of $85.
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