Jane Investor purchased a $10,000 bond at 90. The annual interest is 5%. What was the cost of the bond? What was the annual interest? What is the yield (to the nearest tenth of a percent)?
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The cost of the bond was 90/100 times $10,000, that is, $9,000 total.
The annual interest is 5% of $10,000, that is, $500.
The current yield is 5% divided by (90/100), that is 5.555%; round to 5.6% as instructed.
The yield that real bond buyers would be more interested in is the yield to maturity, but this cannot be calculated without knowing the term (number of years). If it's a short term bond that will pay you back $10,000 in just a few years, that would add several percent to the yield, but if it's a 15-year bond the growth of the $9,000 to $10,000 adds only a fraction of 1% to the yield.
HOPE , IT HELPS ... ✌
_________________________
The cost of the bond was 90/100 times $10,000, that is, $9,000 total.
The annual interest is 5% of $10,000, that is, $500.
The current yield is 5% divided by (90/100), that is 5.555%; round to 5.6% as instructed.
The yield that real bond buyers would be more interested in is the yield to maturity, but this cannot be calculated without knowing the term (number of years). If it's a short term bond that will pay you back $10,000 in just a few years, that would add several percent to the yield, but if it's a 15-year bond the growth of the $9,000 to $10,000 adds only a fraction of 1% to the yield.
HOPE , IT HELPS ... ✌
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