In 2022, a customer buys 5 GE 10% bonds, M '42 at 90. The interest payment dates are Feb 1st and Aug 1st. The bonds are callable as of 2027 at 107. The current yield on the bonds is:

Answer 1

To find the current yield on the bonds, we need to calculate the annual interest payment and divide it by the current market price of the bonds.

Each bond has a face value of $1000, and it pays a 10% coupon rate. Therefore, the annual interest payment per bond is 10% of $1000, which is $100.

Since the customer buys 5 bonds, the total annual interest payment is 5 * $100 = $500.

The customer buys the bonds at a price of 90, which means the market price is 90% of the face value. So, the market price per bond is $1000 * 90% = $900.

Therefore, the current yield on the bonds is ($500 / $900) * 100% = 55.56%.