Question

On January 1 of the current year, Trueman Corporation issued $400,000 of 20-year, 11% bonds for $369,908, yielding a market (yield) rate of 12%. Interest is payable semiannually on June 30 and December 31. What is the yield rate of the bonds?

1) 11%
2) 12%
3) 20%
4) Cannot be determined

Answer 1

The yield rate of Trueman Corporation's bonds, which were issued at a discount due to the market interest being higher than the coupon rate, is 12%.

Step-by-step explanation:

The yield rate of the bonds issued by Trueman Corporation is the market (yield) rate, which is the rate of return required by investors in the market.

Given that the bonds were issued for $369,908 but were supposed to be $400,000 at face value, this indicates that the bonds were sold at a discount due to the market interest rate being higher than the coupon rate. The yield rate, in this case, is indicated in the question as being 12%.