Question

Suppose that a consol has a promised payment of 6 pounds per 100 pounds notional. This consol is now traded at 150 pounds. What it the current yield to maturity of the consol?

Answer 1

Given:

Traded=150 pounds

payment=6 pounds

To Find:

Current yield =?

Solution:

The current yield can be determined by the following formula

=$\frac{payment}{trade} \\\\=\frac{6}{150} \\\\=0.04$

~4%

Therefore the current yield  to the maturity of the console =4%

Answer 2

Current yield to maturity = 4%

Explanation:

Given:

Promised payment = 6 pounds per 100 pounds notional

Consol trade price = 150 pounds

Find:

Current yield to maturity

Computation:

Current yield to maturity = [Promised payment / Consol trade price]100

Current yield to maturity = [6 / 150]100

Current yield to maturity = [0.04]100

Current yield to maturity = 4%

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