Question

What is the yield on a corporate bond with a $1000 face value purchased at a discount price of $850, if it pays 8% fixed interest for the duration of the bond?

A. 9.41%
B. 7.06%
C. 10.59%
D. 6.76%

Answer 1

The yield on a corporate bond with a $1000 face value and purchased at a discount price of $850 can be calculated by dividing the annual interest payment by the purchase price of the bond.

Step-by-step explanation:

The yield on a corporate bond can be calculated by dividing the annual interest payment by the purchase price of the bond. In this case, the bond has a face value of $1000 and a purchase price of $850. Since it pays 8% interest annually, the annual interest payment is ($1000 * 8%) = $80.

To calculate the yield, divide the interest payment by the purchase price: ($80 / $850) = 0.0941 (or 9.41%). Therefore, option A is the correct answer.