A $15 000, 4.4% bond with semi-annual coupons redeemable at par on April 25, 2025, was purchased on June 25, 2016, at 93.725. What was the approximate yield rate?

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Quizplus · Accepted Answer

The yield rate of a bond is determined by its coupon rate, the price paid for it, and the time until maturity. Given that the bond was purchased at a discount (93.725% of par value) and has a coupon rate of 4.4%, the yield will be higher than the coupon rate due to the discount and the semi-annual compounding of interest. The closest approximation to the correct yield, considering the bond's characteristics and the discount at which it was purchased, is 5.26%. This accounts for the bond's income from semi-annual coupons and the gain from purchasing the bond below par value, spread over the investment period until maturity.