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11 December, 18:24

Rachael purchased a five year $4,750 bond below par value for $3,940 with a coupon of 2.9%. What was her yield?

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  1. 11 December, 18:44
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    Yield is given by:

    current yield = (annual cash flow) / (market price)

    annual cashflow (coupon) = 2.9/100*4750=137.75

    market price of the bond = $3940

    thus the yield will be given by:

    137.75/3940

    =0.03496
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