The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

-A bond with a par value of $1,000 is traded at $2,000. The interest rate offered on the bond is 10 percent per annum. The bond matures after a period of 5 years. The yield from the bond is:

Question

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2
 
-A bond with a par value of $1,000 is traded at $2,000. The interest rate offered on the bond is 10 percent per annum. The bond matures after a period of 5 years. The yield from the bond is:

Quizplus · Accepted Answer

The yield of a bond is calculated based on its current market price, not its par value. Since the bond is trading at $2,000 and offers a $100 annual interest payment (10% of its $1,000 par value), the yield is $100 / $2,000 = 5%.

The Figure Given Below Shows the Demand [D and D']