Rachel McGovern bought a 10-year bond for $921.77 seven years ago. The bond pays a coupon of 15 percent semiannually. Today, the bond is priced at $961.22. If she sold the bond today, what would be her realized yield? (Round to the nearest percent.)

Question

Quizplus · Accepted Answer

The realized yield combines the coupon income and the capital gain or loss from holding the bond. Rachel bought the bond for $921.77 and sold it for $961.22, realizing a capital gain. The bond pays a 15% annual coupon rate on its face value, which is semiannually distributed. To find the realized yield, we need to calculate the total return (including both the coupon payments and the capital gain) over the investment period and then annualize this return. Given the information and the need to round to the nearest percent, the realized yield is approximately 17%. This accounts for both the income from the coupons and the gain from selling the bond at a higher price than the purchase price.

Rachel McGovern Bought a 10-Year Bond for $921