Elliot Enterprises’ bonds currently sell for $1,150, have an 11% coupon interest rate and a $1,000 par value, pay interest annually, and have 18 years to maturity.
a. Calculate the bonds’ current yield.
b. Calculate the bonds’ yield to maturity (YTM).
c. Compare the YTM calculated in part b to the bonds’ coupon interest rate and current yield (calculated in part a). Use a comparison of the bonds’ current price and par value to explain these differences.