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What is the yield on a corporate bond with a $1000
face value purchased at a discount price of $875, if
it pays 8% fixed interest for the duration of the
bond?
yield = [ ? ] %
Give your answer as a percent rounded to the nearest
hundredth
Hint: yield = interest paid
price paid

Sagot :

Lanuel

Based on the calculations, the yield on this corporate bond is equal to 9.14%.

What is yield?

Yield can be defined as a measure of the income returned or earned from an investment such as the interest earned from holding a corporate bond.

Mathematically, the yield on an investment can be calculated by using this formula:

Yield = Interest paid/Price paid

However, we would need to determine the interest paid as follows:

Interest paid = value of bond × Interest rate

Interest paid = 1000 × 0.08

Interest paid = $80.

Substituting the given parameters into the formula, we have;

Yield = Interest paid/Price paid

Yield = 80/875 × 100

Yield = 9.14%.

Read more on yield here: https://brainly.com/question/27531875

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