A one-year bond with a $10,000 original value offers a single fixed payment of $800 at the end of the year. You buy this bond for $8,000 on the bond market. The interest rate on your investment will be 8 percent.

Question

Quizplus · Accepted Answer

The interest rate on your investment, also known as the yield, is calculated by dividing the interest payment by the purchase price. In this case, the interest payment is $800, and the purchase price is $8,000, so the yield is $800 / $8,000 = 0.10 or 10%.

A One-Year Bond with a $10,000 Original Value Offers a Single