The bond pays interest semiannually What is the current yield on one of these

# The bond pays interest semiannually what is the

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The bond pays interest semiannually. What is the current yield on one of these bonds? Current yield = (0.052*1000)/(1.0316*1000) = 5.04%

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5. Describe the relationships that exist between the coupon rate, the yield to maturity, and the current yield for both a discount bond and a premium bond. For premium bonds, the coupon rate exceeds YTM; for discounted bonds, YTM exceeds the coupon rate. For bonds sold at par value, YTM is equal to the coupon rate. The current rate of return is defined as the annual coupon payment divided by the current bond price. For premium bonds, the current rate of return exceeds YTM; for discounted bonds, the current rate of return is lower than YTM; for bonds sold at face value, the current rate of return is equal to YTM. 6. Miller Brothers Hardware paid an annual dividend of \$0.95 per share last month. Today, the company announced that future dividends will be increasing by 2.6 percent annually. If you require a 13 percent rate of return, how much are you willing to pay to purchase one share of this stock today? 0.95 x (1+0.026)/ 0.13-0.026 = \$9.37 7. The common stock of Textile Mills pays an annual dividend of \$1.65 a share. The company has promised to maintain a constant dividend even though economic times are tough. How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return?
• Fall '09

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