Realised yield: Jorge Cabrera paid $980 for a 15-year bond 10 years ago. The bond pays a coupon of 10 percent semiannually. Today, the bond is priced at $1,054.36. If he sold the bond today, what would be his realised yield? (Round to the nearest percent.)

Question

Quizplus · Accepted Answer

To calculate the realised yield, we need to use the following formula:

Realised Yield = (Coupon Payment + ((Sale Price - Purchase Price) / Years Held)) / ((Sale Price + Purchase Price) / 2)

We know that the bond has a 10% coupon rate semiannually, so the coupon payment is:

Coupon Payment = (10% / 2) x $1,000 = $50

We also know that Jorge purchased the bond for $980 and sold it for $1,054.36, and that he held the bond for 10 years. Plugging in these values, we get:

Realised Yield = ($50 + (($1,054.36 - $980) / 10)) / (($1,054.36 + $980) / 2) = 0.11 or 11%

Therefore, the best choice is C – 11%.

Realised Yield: Jorge Cabrera Paid $980 for a 15-Year Bond