Question

What is the yield on a corporate bond with a $1000face value purchased at a discount price of $950, ifit pays 6% fixed interest for the duration of thebond?yield = [?] %Give your answer as a percent rounded to the nearesthundredthHint: yield =interest paidprice paid

Answer 1

The formula to calculate the yield is given to be:

$yield=\frac{\text{ interest paid}}{price\text{ paid}}$

Interest Paid:

The formula for interest is given to be:

$interest=\frac{\text{rate}}{100}\times\text{value}$

The rate is given to be 6% and the value of the bond is $1000. Therefore, we can calculate the interest paid to be:

$interest=\frac{6}{100}\times1000=60$

The interest paid is $60.

Price Paid:

The price paid for the bond is $950.

Yield Calculation:

Given the parameters above, we can calculate the yield to be:

$yield=\frac{60}{950}=0.063158$

In percentage:

$yield=0.063158\times100=6.3158$

The yield, to the nearest hundredth, is 6.32%.