What is the approximate yield on a 20-year 10 percent annual coupon less developed country (LDC) bond selling at 25 cents on the dollar? (Choose the closest answer)

Question

Quizplus · Accepted Answer

The yield is calculated as the annual coupon payment divided by the current market price of the bond. In this case, the bond has a 10 percent annual coupon payment, which means it pays $10 per year for every $100 face value. However, the bond is selling at only 25 cents on the dollar, which means the market price is only 25 percent of the face value ($100). Therefore, the annual coupon payment of $10 represents a yield of $10/$25 = 40 percent.

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