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24 December, 20:13

Rachel McGovern bought a 10-year bond for $921.77 seven years ago. The bond pays a coupon of 15 percent semiannually. Today, the bond is priced at $961.22. If she sold the bond today, what would be her realized yield

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  1. 25 December, 00:01
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    17%

    Explanation:

    Purchase price of bond = $921.77

    Years investment held = n = 7

    Coupon rate = C = 15%

    Frequency of payment = m = 2

    Annual coupon = $1,000 * (0.15/2) = $75.00

    Realized Yield = i

    Selling price of bond = PB = $961.22

    The realized rate of return is approximately 16.6 percent. Using a financial calculator provided an exact yield of 16.625 percent.
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