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18 May, 17:51

Trevor Price bought 10-year bonds issued by Harvest Foods fi ve years ago for $936.05. Th e bonds make semiannual coupon payments at a rate of 8.4 percent. If the current price of the bonds is $1,048.77, what is the yield that Trevor would earn by selling the bonds today?

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  1. 18 May, 18:12
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    Answer: 11.14%

    Explanation:

    Buying price of bond = $936.05 - PV

    Years investment held = n = 5*2

    Rate of the Coupon = C = 8.4%

    Frequency of payment = m = 2

    Annual coupon = $1,000 * (0.084/2) = $42

    Realized yield = i

    Selling price of bond = PB = $1,048.77 = FV

    Enter N = 10, PMT = $42, PV = - $936.05$, FV = 1,048.77

    Answer 5.425%

    The effective annual yield can be computed as:

    EAY = (1 + Quoted m) ^m - 1

    = (1+0.054) ^2 - 1

    = (1.054) ^2 - 1

    =0.1114 = 11.14
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Home » Business » Trevor Price bought 10-year bonds issued by Harvest Foods fi ve years ago for $936.05. Th e bonds make semiannual coupon payments at a rate of 8.4 percent. If the current price of the bonds is $1,048.
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