A $40,000, 8% bond that matures in 6 years has interest payable semiannually. If the quoted price is $38,000, what is the yield rate?
To find the Yield rate, we need to put the following values in the financial calculator:
N = 6*2 = 12;
PV = -38,000;
PMT = (8%/2)*40,000 = 1,600;
FV = 40,000;
Press CPT, then I/Y, which gives us 4.55
So, Periodic Rate = 4.55;
Yield = Periodic Rate * No. of compounding periods in a year
= 4.55% * 2 = 9.10%
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