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 = ?%
To calculate the current yield on a bond, you need to divide the annual interest payment by the current market price of the bond and then multiply by 100 to express the yield as a percentage.
Let's calculate the current yield for each scenario:
(a) For a $1,200 bond:
Current Yield = (Annual Interest Payment / Current Market Price) * 100
= ($100 / $1,200) * 100
= 0.0833 * 100
= 8.33%
(b) For a $1,000 bond:
Current Yield = (Annual Interest Payment / Current Market Price) * 100
= ($100 / $1,000) * 100
= 0.1 * 100
= 10%
(c) For an $800 bond:
Current Yield = (Annual Interest Payment / Current Market Price) * 100
= ($100 / $800) * 100
= 0.125 * 100
= 12.5%
Therefore, the current yield for each scenario is as follows:
(a) Yield on $1,200 bond is 8.33%
(b) Yield on $1,000 bond is 10%
(c) Yield on $800 bond is 12.5%
To calculate the current yield on a bond, you need to divide the annual interest payment by the bond's purchase price and multiply by 100 to convert it to a percentage. Let's calculate the current yield for each scenario:
(a) $1,200 bond:
Interest payment = $100
Purchase price = $1,200
Current yield = (Interest payment / Purchase price) * 100
Current yield = ($100 / $1,200) * 100
Current yield ≈ 8.3%
(b) $1,000 bond:
Interest payment = $100
Purchase price = $1,000
Current yield = (Interest payment / Purchase price) * 100
Current yield = ($100 / $1,000) * 100
Current yield = 10%
(c) $800 bond:
Interest payment = $100
Purchase price = $800
Current yield = (Interest payment / Purchase price) * 100
Current yield = ($100 / $800) * 100
Current yield ≈ 12.5%
So, the current yield for each scenario is:
(a) $1,200 bond: 8.3%
(b) $1,000 bond: 10%
(c) $800 bond: 12.5%