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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 realized yield

Respuesta :

Answer:

10.64%

Explanation:

For computing the realized yield, we applied the RATE formula i.e to be shown in the attachment below:

Given that,  

Present value = $980

Future value or Face value = $1,054.36  

PMT = 1,000 × 10% ÷ 2 = $50

NPER = 10 years × 2 = 20 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

After applying the formula, the realized yield is

= 5.32% × 2

= 10.64%

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Tundexi

The realized yield will be 10.64% If he sold the bond today.

Given data

Present value = $980

Future value or Face value = $1,054.36  

PMT = 1,000 × 10% ÷ 2 = $50

NPER = 10 years × 2 = 20 years

What formula will be used to derive the realized yield?

= Rate(NPER;PMT;-PV;FV;type) * 2

= Rate (20, 50, -980, 1054.36) * 2

= 5.32% × 2

= 10.64%

In conclusion, the realized yield will be 10.64% If he sold the bond today.

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