Answer:
The yield of this new bond is approx 3.8%.
Step-by-step explanation:
Given : Claribel has a $500 bond with a 4% coupon. Claribel purchased this bond for $525.
To find : What is the yield of this new bond?
Solution :
As coupon is 4
%
, a $
500 bond earns is given by,
A $
500 bond earns $
20 in a year.
Now as market price of bond is $
525
, but it earns $
20
The rate of interest earned is
Therefore, the yield of this new bond is approx 3.8%.