Question

If you paid $900 for a $1000 25-year bond that pays a 10% annual interest payment, the bond's yield is Multiple choice question. 11.1% 5.3% 10% 9%

Answer 1

The bond's yield given the amount paid for the bond, the face value and the annual interest payment is 11.1%.

What is the bond yield?

A bond's yield is the interest rate that equates the cost of the bond to the cash inflows from the bond.

Bond yield can be determined using a financial calculator.

• Cash flow in year 0 = -900
• Cash flow each year from year 1 to 25 = 10% x 1000 = 100
• Cash flow in year 25 = 1000

Bond yield = 11.1%