Question

What is the yield on a corporate bond with a $1000face value purchased at a discount price of $950, ifit pays 6% fixed interest for the duration of thebond?yield = [?] %Give your answer as a percent rounded to the nearesthundredthHint: yield =interest paidprice paid

Answer 1

Based on the value of the corporate bond, the yield on the corporate bond is 6.32%.

How to calculate the yield on a corporate bond

To calculate the yield on a corporate bond, use the formula below;

yield = (interest paid / price paid) * 100

In this case, the face value of the bond is $1000, and it is purchased at a discount price of $950. The bond pays a fixed interest rate of 6% for the duration of the bond.

To find the interest paid, calculate 6% of the face value:

interest paid = 6% of $1000

= 0.06 * $1000

= $60

Now, plug the values into the yield formula:

yield = (interest paid / price paid) * 100

yield = ($60 / $950) * 100

Calculating:

yield ≈ 0.063157 * 100

yield ≈ 6.3157

Rounded to the nearest hundredth, the yield on the corporate bond is approximately 6.32%.

Therefore, the yield on the corporate bond is 6.32%.

Answer 2

The formula to calculate the yield is given to be:

`yield=\frac{\text{ interest paid}}{price\text{ paid}}`

Interest Paid:

The formula for interest is given to be:

`interest=\frac{\text{rate}}{100}*\text{value}`

The rate is given to be 6% and the value of the bond is $1000. Therefore, we can calculate the interest paid to be:

`interest=(6)/(100)*1000=60`

The interest paid is $60.

Price Paid:

The price paid for the bond is $950.

Yield Calculation:

Given the parameters above, we can calculate the yield to be:

`yield=(60)/(950)=0.063158`

In percentage:

`yield=0.063158*100=6.3158`

The yield, to the nearest hundredth, is 6.32%.