A $1000 bond with semi-annual coupons at j₂ = 6% (Feb.1 and Aug.1 of every year)is sold for $980 on August 1,2007.It is bought for $920 on February 1,2000.Using the method of averages,what is the yield rate,j₂?

Question

Quizplus · Accepted Answer

The method of averages for yield rate calculation involves averaging the initial and final prices, then comparing the average price to the average coupon to find the yield rate. Given the bond's semi-annual coupon rate of 6% on a $1000 face value, the semi-annual coupon is $30. The bond is sold for $980 and bought for $920, so the average price is ($980 + $920) / 2 = $950. The yield rate is then found by comparing the average coupon to the average price, leading to a yield rate of approximately 7.16%.

A $1000 Bond with Semi-Annual Coupons at J2 = 6

A $1000 Bond with Semi-Annual Coupons at J₂ = 6