Question

Kevin has a 2000 bond which a 5% coupon. Kevin purchase this bond for 2070$. What is this yield of this new bond?

Answer 1

Answer:

4.8%

Step-by-step explanation:

Bond par value = $2000

Coupon rate = 5% = $\frac{5}{100}$ = 0.05

Market price of bond = $2070

Current yield of bond = $\frac{Annual Dollar Interest Paid}{Market Price} *100$%

= $\frac{Coupon\hspace{3}rate*Bond\hspace{3}par\hspace{3}value}{Market\hspace{3}Price} *100$%

= $\frac{0.05*2000}{2070} *100$%

= $\frac{100}{2070} *100$%

= 0.048*100%

= 4.8%