AEP's bonds currently sell for $955. They have a 7.21% annual coupon rate and a 30-year...

AEP's bonds currently sell for $955. They have a 7.21% annual coupon rate and a 30-year maturity. What rate of return should an investor expect to earn if he or she purchases these bonds?
Group of answer choices
7.59%
13.00%
10.07%
8.75%
9.14%

Solutions

Expert Solution

Annual coupon=1000*7.21%

=$72.1

Hence Approx Yield to maturity=[Annual coupon+(Face value-Present value)/time to maturity]/(Face value+Present value)/2

=[72.1+(1000-955)/30]/(1000+955)/2

which is equal to

=7.59%(Approx)=rate of return

jeff jeffy answered 2 years ago

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