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17 March, 10:52

Jenny LePlaz is looking to invest in a five-year bond that pays annual coupons of 6.25 percent and currently sells at $912.34. What is the current market yield on such bonds?

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  1. 17 March, 14:31
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    8.47%

    Explanation:

    annual coupon = 6.25% x $1,000 = $62.50

    present value = - $912.34

    cash flow 0 = - $912.34

    cash flow 1 = $62.50

    cash flow 2 = $62.50

    cash flow 3 = $62.50

    cash flow 4 = $62.50

    cash flow 5 = $1,062.50

    using an excel spreadsheet and the IRR function we can determine the yield to maturity = 8.47%
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