An investor purchased an NCD a year ago in the secondary market for $980,000. She redeems it today and receives $1,000,000. She also receives interest of $30,000. The investor's annualized yield on this investment is

Question

Quizplus · Accepted Answer

The investor's total return includes both the capital gain and the interest received. The capital gain is $1,000,000 - $980,000 = $20,000. The total return is therefore $20,000 (capital gain) + $30,000 (interest) = $50,000. The annualized yield is calculated as the total return divided by the initial investment, then multiplied by 100 to get a percentage: ($50,000 / $980,000) * 100 = 5.10 percent.

An Investor Purchased an NCD a Year Ago in the Secondary