Assume that a $1,000 bond issued in 2012 pays $100 in interest each year. What is the current yield on the bond if it can be purchased for
Instructions: Enter your responses as a percent rounded to one decimal place.
(a) $1,200? Yield on $1,200 bond is = ?%
(b) $1,000? Yield on $1,000 bond is = ?%
(c) $800? Yield on $800 bond is = ?%
Thanks for the help, but I got the right answers. Thanks anyway.
To find the current yield on a bond, you need to divide the annual interest payment by the purchase price of the bond, and then multiply by 100 to convert it to a percentage.
(a) For a $1,200 bond, the annual interest payment is $100.
Current yield on a $1,200 bond is calculated as:
(Annual interest payment / Purchase price of the bond) x 100
Current yield on a $1,200 bond is:
($100 / $1,200) x 100 = 8.3%
(b) For a $1,000 bond, the annual interest payment is $100.
Current yield on a $1,000 bond is calculated as:
(Annual interest payment / Purchase price of the bond) x 100
Current yield on a $1,000 bond is:
($100 / $1,000) x 100 = 10%
(c) For an $800 bond, the annual interest payment is $100.
Current yield on an $800 bond is calculated as:
(Annual interest payment / Purchase price of the bond) x 100
Current yield on an $800 bond is:
($100 / $800) x 100 = 12.5%
So, the current yields on the bonds are:
(a) 8.3%
(b) 10%
(c) 12.5%