Question

Solow corporation has a bond with annual interest payments of $200 maturing in 19 years at a value of $1,000 per bond. the current market price is $800. what will the nominal yield be?

Answer 1

To calculate the nominal yield of the bond, divide the annual interest payment by the current market price and multiply by 100. In this case, the nominal yield is 25%.

Step-by-step explanation:

The nominal yield of a bond refers to the interest rate it promises to pay. In this case, the bond has an annual interest payment of $200 and a value of $1,000. To calculate the nominal yield, divide the annual interest payment by the current market price and multiply by 100.

Therefore, the nominal yield can be calculated as follows:

(200 / 800) * 100 = 25%

So, the nominal yield of the bond is 25%.