What is the approximate yield on a 20-year 10 percent annual coupon less developed country (LDC)bond selling at 25 cents on the dollar? (Choose the closest answer)

Question

Quizplus · Accepted Answer

The yield on a bond can be calculated using the formula: (annual coupon payment ÷ price) x 100%. 
For this bond, the annual coupon payment is 10% of the face value, which is $10 ($100 face value x 10%). 
The price is 25 cents on the dollar, which means it is selling for 25% of the face value. 
So, the yield would be: (10 ÷ 25) x 100% = 40%. Therefore, the closest answer is B) 40 percent.

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