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Calculate the current yield on this bond

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Reference no: EM131084550

Megan owns a 10-year bond with a par value of $1,000 and a coupon rate of 8%. The current market price of this bond is $1,194.

a. Like most bonds, this bond pays its interest every six months. How much (in dollars) will Megan earn in interest every six months? Explain or show work.

b. If market interest rates rise, will the market price of Megan’s bond change? If so, in which direction? Explain.

c. If the market price of this bond changes, will Megan’s interest payments change? If so, in which direction? Explain.

d. If market interest rates rise, and Megan holds this bond to maturity, will the amount she receives at maturity change? If so, in which direction? Explain.

e. Calculate the current yield on this bond. Express your answer as a percentage rounded to one decimal place. Show work.

Reference no: EM131084550

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