What is the approximate yield on a 20-year 10 percent annual coupon less developed country (LDC) bond selling at 75 cents on the dollar? (Choose the closest answer)

Question

Quizplus · Accepted Answer

Since the bond has a 10 percent coupon rate and is selling for 75 cents on the dollar, we can first calculate the annual interest payment on the bond as 10% × 1000 (the face value) = $100. However, since the bond is selling for 75 cents on the dollar, the cost of the bond would be 0.75 × $1000 = $750. 
Therefore, the yield on the bond can be calculated as follows:
Annual interest payment ÷ cost of bond = $100 ÷ $750 = 0.1333 or 13.33%
Rounding to the nearest whole number, the yield on the 20-year 10 percent annual coupon LDC bond would be approximately 14 percent (Option C).

What Is the Approximate Yield on a 20-Year 10 Percent