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KiRa [710]
3 years ago
14

The bond has a 12% annual coupon rate, a $1,000 par value, it matures in 15 years and pays coupon quarterly. The current bond pr

ice is $900. What is the bond’s annual yield? A. 14.28% B. None of the answers is correct C. 13.60% D. 12.85%
Business
1 answer:
Vladimir79 [104]3 years ago
4 0

Answer:

A. 14.28%

Explanation:

As per Approximation formula,

Quarterly yield = (A + B / C) * 100

A = Quarterly coupon = 12% of 1,000 / 4 =30

B = (Redemption - Price value / Number of coupon) = (1,000 - 900) / (15 * 4)

= 1.667

C= (Redemption value + Price / 2) = 1,000 + 900 / 2 = 1,900 /2 =  950

Quarterly yield = 30 + 1.66667 / 950 = 31.6667 / 950 = 0.03333

Quarterly yield = 3.33%

Using the calculator, we get exact Ytm quarterly = 3.3925%

Effective amount yield = {(1 + 0.033925)^4 - 1} * 100

Effective amount yield = 0.142762 * 100

Effective amount yield = 14.2762%

Effective amount yield = 14.28%

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hope this helps!

- a random freshman

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