BUSI 2503 Study Guide - Final Guide: Current Yield

• School: Carleton University
• Department: Business
• Course: BUSI 2503
• Professor: Issac Otchere

Document Summary

The coupon payments are fixed at per year. Coupon rate = coupon payment/par value = 60/1000 = 6%, which remains unchanged: when the market yield increases, the bond price will fall. The cash flows are discounted at a higher rate. At a lower price, the bond"s yield to maturity will be higher. The higher yield to maturity on the bond is commensurate with the higher yields available in the rest of the bond market. As coupon payment remains the same and the bond price decreases, the current yield increases. Coupon rate = / = . 08 = 8% Current yield = / = . 0842 = 8. 42% [enter in the calculator: n = 6; pv= -950; fv = 1000; pmt = 80] Coupon payment = interest = . 05 1000 = 50. Capital gain = 1100 1000 = 100. Rate of return = purchase price interest + capital gain. Tax on interest received = tax rate interest = . 3 50 = 15.