A $1000 bond with semi-annual coupons at j₂ = 12% matures on April 16,2010 at 105.If the price on April 16,2005 was $1080,what is the yield j₂ by the method of averages?

Question

Quizplus · Accepted Answer

The yield by the method of averages is calculated by averaging the coupon rate and the capital gain/loss rate. The bond has a coupon rate of 12% semi-annually, and the capital loss from $1080 to $1050 over 5 years is calculated. The average of these rates gives approximately 10.70%.

A $1000 Bond with Semi-Annual Coupons at J2 = 12

A $1000 Bond with Semi-Annual Coupons at J₂ = 12