Question

A $10,000 Fargo Municipal bond at 102.5 pays 5% interest. Find the annual yield.

Answer 1

Hello,

The formula for annual yield is annual interest/bond cost.

So annual interest would be % of interest times 10k in this case 10000(0.5)

Annual Interest is 500.

Bond cost is out of 100%. Bond price here is 102.5 (1.025%)(10000) = 10250

So your annual yield would be around 500/10250.

Thanks,

Answer 2

4.878%

Explanation:

Given that a $10,000 Fargo Municipal bond at 102.5 pays 5% interest. Find the annual yield.

Interest revenue gained = 10000*5%

=500 dollars

AMount invested initially = 10250

Hence yield rate =
`(500)/(10250) *100\\=4.878%`