Question

What is the yield on a corporate bond with a $1000face value purchased at a discount price of $925, ifit pays 6% fixed interest for the duration of thebond?yield = [?] %Give your answer as a percent rounded to the nearesthundredthHint: yieldinterest paidprice paidEnter

Answer 1

The yield is 6.5%

Problem Statement

The question tells us to calculate the yield on a corporate bond with $1000 face value bought with a discount at $925 with 6% fixed interest for the duration of the bond

Method

To solve the question, we need to follow these steps:

1. Calculate the interest paid:

2. Apply the yield formula given:

`\begin{gathered} \text{yield}=\frac{\text{Interest paid}}{\text{price paid}} \\ \text{where,} \\ \text{price paid = price after deducting discount} \end{gathered}`

Implementation

1. Calculate the Interest paid:

This is given by:

`\begin{gathered} \text{ interest paid = }(6)/(100)*\text{ \$1000} \\ \text{ interest paid = \$60} \end{gathered}`

2. Apply the yield formula:

`\begin{gathered} \text{yield}=\frac{\text{ interest paid}}{\text{price paid}} \\ \text{ interest paid = \$60} \\ \text{price paid = \$925} \\ \\ \therefore\text{yield}=(60)/(925)*100=0.06486*100\approx0.065*100 \\ \\ \therefore\text{yield}=6.5\text{ \%} \end{gathered}`

Final Answer

The yield is 6.5%