Personal Finance 1st Edition by Jack R. Kapoor

Exercise 34

Calculating Yields. Assume that 10 years ago you purchased a $1,000 bond for $820. The bond pays 6.75 percent interest and will mature this year. (Obj. 5)

a. Calculate the current yield on your bond investment at the time of the purchase.

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b. Determine the yield to maturity on your bond investment.

Step 1 of 3

Current yield is determined by dividend the annual dollar amount of income generated by an investment by the investment’s current market value.

Yield to maturity: Yield to maturity is the rate of return expected on a bond that held by someone until its maturity is known as yield to maturity. It takes into account the relationship among a bond’s maturity value, the time to maturity, the current price, and the dollar amount of interest.