Question

Consider a bond that costs $1,000 and pays an $80 interest payment each year.

Answer 1

Answer:

The interest rate for this bond is 8% per annum.

Explanation:

Given that,

a bond that costs $1,000 and pays an $80 interest each year.

To find the rate of interest, we use the following formula is

I=Prt

Here P = principal= $1,000

I=interest= $80

t=time= 1 year

∴80 = 1000×r×1

$\Rightarrow r=\frac{80}{1000}$

⇒r = 0.080

⇒r= 8%

The yield for this bond is 8% per annum.