Question

9. Lacy has a $1000 bond with a 6.2% coupon that she purchased for $1025.

What is the yield of this bond? Round your answer to 2 decimal places.

Answer 1

The yield of the bond can be calculated using the following formula:

yield = (annual interest payment / bond price) x 100%

First, we need to calculate the annual interest payment:

annual interest payment = bond face value x coupon rate
annual interest payment = $1000 x 6.2%
annual interest payment = $62

Now, we can plug in the values to calculate the yield:

yield = ($62 / $1025) x 100%
yield = 0.0605 x 100%
yield = 6.05%

Therefore, the yield of the bond is 6.05% rounded to 2 decimal places.