We appreciate your visit to Rachael purchased a five year 4 750 bond below par value for 3 940 with a coupon rate of 2 9 What was her yield. This page offers clear insights and highlights the essential aspects of the topic. Our goal is to provide a helpful and engaging learning experience. Explore the content and find the answers you need!
Answer :
Answer:
Her yield was 0.035 or 3.5%.
Step-by-step explanation:
Rachael purchased a five year bond = $4,750
Market value = $3,940
To calculate the bond yield, divide its coupon payment by the market value of the bond.
Coupon value = 2.9% of 4,750
= 0.029 × 4,750 = $137.75
Yield = Coupon (annual cashflow) / market value of the bond
137.75 ÷ 3,940 = 0.0346 rounded to 0.035
Her yield was 0.035 or 3.5%
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Rewritten by : Barada
yield is given by:
current yield=(annual cash flow)/(market price)
annual cashflow(coupon)= 2.9/100×4750=137.75
market price of the bond= $3940
thus the yield will be given by:
137.75/3940
=0.03496
current yield=(annual cash flow)/(market price)
annual cashflow(coupon)= 2.9/100×4750=137.75
market price of the bond= $3940
thus the yield will be given by:
137.75/3940
=0.03496
