In: Accounting
(1 point) A $3500 bond paying interest at j1j1 = 10% matures on June 1, 2030. On July 22, 2004, it was purchased for $3551 plus bond interest. On April 3, 2009, it was sold for $3443 plus bond interest. Estimate the yield j1j1 by the method of averages.
To calculate the yield method of averages we have figures mentioned below, to calculate the average return yield we should have the interest gain for the bond holding years and the value of the bond sold in specific year.
Bond paying interest = 10%
Rate of bond purchased = $ 3551
Rate of bond sold $ 3443
Below table is the calculation for simple bond yield of j1 of the years bond holded.
A | B | C | D | E | |
Total period Year | Bond Value | Interest rate | No. of Days/Months/Year for the bond paid | Interest earned for the year | Calcualtion for the "E" Column |
22-Jul-2004 to 31-Dec-2004 | 3500 | 10% | 162 Days | 155.342 | =3500*10%*162/365 |
2005 | 3500 | 10% | 1 Year | 350 | =3500*10% |
2006 | 3500 | 10% | 1 Year | 350 | =3500*10% |
2007 | 3500 | 10% | 1 Year | 350 | =3500*10% |
2008 | 3500 | 10% | 1 Year | 350 | =3500*10% |
1-Jan-2009 to 3-Apr-2009 | 3500 | 10% | 92 Days | 88.219 | =3500*10%*92/365 |
Total | 1643.561 |
So here toal interest gain of j1 is $1643.561
So our net gain being puchased price minus sales price plus interest received i.e. mentioned below;
= $3551 - $3443 = -$108 (being a loss we are marking it has minus)
= -$108 + $1643.561
= $1535 for a approximate period of 5 years, which is $307 per year.