Rick Wemmerslager bought a 10-year bond for $921.77 seven years ago.The bond pays a coupon of 15 percent semi-annually.Today,the bond is priced at $961.92.If he sold the bond today,what would be his realised yield? (Round to the nearest percent.)

Question

Quizplus · Accepted Answer

The correct answer is A.The realized yield is the annual return an investor earns on a bond if they buy and hold it until maturity. It is calculated as the difference between the purchase price and the sale price, plus the coupon payments received, divided by the average of the purchase price and the sale price.In this case, Rick bought the bond for $921.77 and sold it for $961.92. He received coupon payments of $150 per year for seven years, for a total of $1,050. The average of the purchase price and the sale price is ($921.77 + $961.92) / 2 = $941.85.Therefore, the realized yield is (($961.92 - $921.77) + $1,050) / $941.85 = 16.62%.

Rick Wemmerslager Bought a 10-Year Bond for $921