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17 December, 08:32

Ivan has a $500 bond with a 5.8% coupon. Ivan purchased this bond for $515.

What is the yield of this new bond?

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  1. 17 December, 09:00
    0
    The yield is 5.974%

    Step-by-step explanation:

    We proceed as follows;

    coupon rate = Annual coupon payment/bond face value.

    The face value is the original amount which the bond was bought and that is $515 according to the question. While the coupon rate is 5.8%

    mathematically, annual coupon payment = coupon rate * bond face value = 0.058 * 515 = $29.87

    mathematically;

    current yield = Annual coupon payment/bond price

    current yield = 29.87/500

    = 0.05974 or simply 5.974%
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