Suppose the ZZZ Corporation sells a perpetuity coupon bond for $1,000 and its coupon payment is $100. In this example, the yield is _____. If the company sells the bond for $500 instead, the yield is _____.

Question

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The yield of a perpetuity is calculated as the coupon payment divided by the price of the bond. For the first bond sold at $1,000 with a $100 coupon payment, the yield is $100 / $1,000 = 0.10 or 10%. For the second bond sold at $500 with the same $100 coupon payment, the yield is $100 / $500 = 0.20 or 20%.

Suppose the ZZZ Corporation Sells a Perpetuity Coupon Bond for $1,000