13.

Calculating Yields.

Assume you purchased a high-yield corporate bond at its current market

price of $850 on January 2, 2004. It pays 9 percent interest and will mature on December 31,

2013, at which time the corporation will pay you the face value of $1,000.

a.

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

1,000*9% = $90

90/80 = .1058

=

10.58%

b.

Determine the yield to maturity on your bond investment.

90+((1,000-850)/9) = 106.67

106.67/925 = .1153

=

11.5%

(850+1,000)/2 = 925

where did the 80 come from

?