A bond has a par value of $1,000,a time to maturity of 20 years,a coupon rate of 10% with interest paid annually,a current price of $850 and a yield to maturity of 12%.Intuitively and without the use calculations,if interest payments are reinvested at 10%,the realized compound yield on this bond must be ________.

Question

Quizplus · Accepted Answer

The realized compound yield will be between the coupon rate (10%) and the yield to maturity (12%) because the bond is purchased at a discount and interest is reinvested at the coupon rate.

A Bond Has a Par Value of $1,000,a Time to Maturity