A corporate bond matures in one year. The bond promises a $50 coupon and a principal payment of $1,000 at maturity. If an investor buys the bond for $938.10, calculate the promised yield on the bond.

Question

Quizplus · Accepted Answer

The promised yield on the bond can be calculated using the following formula:

Promised yield = (Coupon + (Principal - Purchase Price) / Time to Maturity) / ((Principal + Purchase Price) / 2)

Plugging in the given values:

Promised yield = (50 + (1000 - 938.10) / 1) / ((1000 + 938.10) / 2)

Promised yield = 11.93 percent

Therefore, the answer is Choice B: 11.93 percent.

A Corporate Bond Matures in One Year