What is the approximate yield on a 20-year 10 percent annual coupon less developed country (LDC)bond selling at 75 cents on the dollar? (Choose the closest answer)

Question

Quizplus · Accepted Answer

The formula to calculate yield on a bond is: 
Yield = Annual Coupon Payment / Current Market Price *100%

In this case, the annual coupon payment is 10% of the face value of the bond, which is $1000. So, it is $100 per year.

The current market price is 75 cents on the dollar, which means the bond is selling for 75% of its face value.

Using the formula, the yield on the bond is: 
Yield = 100 / (0.75*1000) *100%
Yield = 13.33% or approximately 14%.

Therefore, the closest answer is C, 14%.

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