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

Question

Quizplus · Accepted Answer

First, we need to calculate the annual coupon payment. 
20-year bond with 10% coupon rate means an annual coupon payment of (10% of $1,000 face value) = $100. 
Since the bond is selling at 75 cents on the dollar or $750, the yield would be higher than the coupon rate. 
To find the yield, we can use the following formula: 
Yield = (Annual Interest Payment / Bond Price) x 100% 
= ($100 / $750) x 100% 
= 13.33%, which is closest to 14%. Therefore, the answer is C.

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