In: Finance
Trevor Price bought 10-year bonds issued by Harvest Foods five years ago for $974.70. The bonds make semiannual coupon payments at a rate of 8.4 percent. If the current price of the bonds is $1,000, what is the yield that Trevor would earn by selling the bonds today? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.) Effective annual yield %
The selling price today is $1,000 which is equal to the face value of the bond. So, the bond is selling at par. The par bonds have an yield to maturity equal to the coupon rate.
The yield to maturity = 8.4%
Effective annual yield = (1 + 0.084/2)^2 - 1
Effective annual yield = 1.085764 - 1
Effective annual yield = 0.085764
Effective annual yield = 8.5764%
Effective annual yield = 8.58%