Question

1, A) Assume :

P_B = $800

Annual Interest payment =  $40

then yield =

B)

Assume:

P_B =  $3000

Annual Interest payment =  $200

then yield=

If the bond is resold for $1200

then yield =

c)

Assume:

P_B=  $1500

  r =  12%

and the bond is resold for resold for $1000

then yield  =

D)

Assume:

yield = 6%

Annual Interest payment = $300

then P_B =

Answer 1

1,

A) Assume :

P_B = $800

Annual Interest payment = I= $40

then

Yield =I/P_B=40/800=5.00%

B)

Assume:

P_B =  $3000

Annual Interest payment = I= $200

then yield=I/P_B=200/3000=6.67%

If the bond is resold for $1200

S=$1200

then yield =(I+S-P_B)/P_B=(200+1200-3000)/3000=-53.33%

c)

Assume:

P_B=  $1500

  r =  12%

and the bond is resold for resold for $1000

Capital Gain=1000-1500=-$500

Interest Gain=1500*12%=$180

Total Gain=TG=-500+180=-$320

then yield  =TG/PB=-320/1500=-21.33%

D)

Assume:

yield = 6%

Annual Interest payment = $300

then P_B =Annual interest payment/yield=300/6%=$5000