Suppose that a consol has a promised payment of 6 pound per 100 pound national. This consol is now traded at 150 pounds. What is the current yield to maturity of the consol?
1. 1%
2.2%
3.3%
4.4%
Answers
The current yield to maturity of the consol is 4%
Explanation :
Given that a consol has a promised payment of 6 pound per 100 pound notional.
But as it is traded at 150 pounds, 150 pounds will be considered as the payment.
Now, the current yield = payment / trade
= 6 / 150
= 0.04
Converting 0.04 rate to percentage = 0.04 x 100% = 4%
Therefore, the curent yield to maturity of the consol is 4%
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Current yield to maturity of the consol = 4%
Explanation:
Given:
Payment made = 6 pound per 100 pound national
New consol payment = 150 pounds
Find:
Current yield to maturity of the consol
Computation:
Current yield to maturity of the consol = [Payment made / New consol payment]100
Current yield to maturity of the consol = [6 / 150]100
Current yield to maturity of the consol = [0.04]100
Current yield to maturity of the consol = 4%