Would anyone help with this please?
Markey is preparing to visit Hannan Capital, a hedge fund client. Markey has summarized in Exhibit 2 the key statistics of two bonds Hannan has purchased recently.
Bond 1 Maturity (years) 1, Coupon 2.00%, Yield 2.25%, Current price 98.76, Expected price in one year 103.39
Bond 2 Maturity (years) 4, Coupon 5.00%, Yield 4.50%, Current price 102.22, Expected price in one year 103.39
I know Yield Income = Annual coupon payment / Current bond price, so I use 2 / 98.76 = 2.025%. but answer is 2.25%/98.76 = ~2.278%. Why use the Yield in numerator instead of Coupon? Thanks.