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14 July, 12:04

Belinda Herrera purchased a $5,000 bond at the quoted price of 94.125. The bond paid interest at a rate of 6%. What is the annual yield?

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  1. 14 July, 13:30
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    6.37%

    Explanation:

    Annual yield is the annual dividend yield of a bond.

    Formula for annual yield = Annual dividend amount / Current price of the bond

    Annual dividend amount = Annual interest rate * Face value

    = 6% * $5,000

    = $300

    Current price = 94.125 means that the bond price is 94.125% of the Face value

    Current price = 0.94125 * 5000 = $4,706.25

    Therefore, annual yield = 300/4,706.25 = 0.0637 or 6.37%
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