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Why does the current yield differ from the yield to maturity

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Current yield and yield to maturity

An annual coupon bond has a $1,900 face value, coupon rate of 5%, will mature in 10 years, and currently sells for $810.34.

Problem a. What is the yield to maturity of the bond?

Problem b. What is the current yield of the bond?

Problem c. Why does the current yield differ from the yield to maturity?

Problem d. One year later, the market rates have increased to 8%. Assume that you have just received a coupon payment and you sold the bond. If you sold your bond at its intrinsic value, what would be the rate of return on your investment?

Reference no: EM132837064

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