55.6k views
4 votes
Jane Investor purchased a $10,000 bond at 90. The annual interest is 5%.

What was the cost of the bond?
What was the annual interest?
What is the yield (to the nearest tenth of a percent)?

User Azam
by
7.8k points

2 Answers

3 votes

Answer:

bond: $9,000

interest:$500

%: 5.6%

User Rohit Goel
by
8.0k points
4 votes
The cost of the bond was 90/100 times $10,000, that is, $9,000 total.

The annual interest is 5% of $10,000, that is, $500.

The current yield is 5% divided by (90/100), that is 5.555%; round to 5.6% as instructed.

The yield that real bond buyers would be more interested in is the yield to maturity, but this cannot be calculated without knowing the term (number of years). If it's a short term bond that will pay you back $10,000 in just a few years, that would add several percent to the yield, but if it's a 15-year bond the growth of the $9,000 to $10,000 adds only a fraction of 1% to the yield.
User Levent Kaya
by
7.6k points