Question

You notice in the WSJ a bond that is currently selling in the market for ​$1,049 with a coupon of 8​% and​ a(n) 21​-year maturity. Using annual​ compounding, calculate the promised yield on this bond.

Answer 1

Answer:

Bond Price P=$1049

Face Value F=$1000

Coupon rate C=8%

N=21 years

Let r be yield

P=F*C*(1-(1+r)^-N)/r + F/(1+r)^N

1049=1000*8%*(1-(1+r)^-21)/r + 1000/(1+r)^21

r=7.53%