Question

Abigail purchases a 5-year, 10,000 bond that pays 3.5% annual coupons and matures at par. She pays 6,000 for the bond and also deposits the coupons into an account which earns 7.5% interest. What is her total yield rate on the 6000 investment once the bond matures

Answer 1

the total yield rate on 6,000 investment is 14.9328%

Step-by-step explanation:

The computation of the total yield rate is as follows:

= ((Annual coupon rate × bond ÷ interest earned percentgae × (1 + interest earned percentage - 1) + bond) ÷ (bond))^(1 ÷ time period) -1

= ((3.5% × 10,000 ÷ 7.5% × (1.075^5 - 1) + 10,000) ÷ (6,000))^(1 ÷ 5) - 1

= 14.9328%

Hence, the total yield rate on 6,000 investment is 14.9328%

The same is to be considered