Yield corporate- Financial Economics by ClassOf1

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									              Sub: Economics                                                             Topic: Financial Economics



              Question:

              What is the approximate yield on the bonds Market purchased? Show your
              work.
         ClassOf1 provides expert guidance to College, Graduate, and High school students on homework and assignment problems in
                       Math, Sciences, Finance, Marketing, Statistics, Economics, Engineering, and many other subjects.

              After doing some research on the Internet, Mark is considering investing his life savings in
              corporate bonds. He's not really sure what they are, however, and wants you to explain them
              to him
              After consulting with you, Mark decides to put all of his money in ACME company’s bonds.
              These bonds have a face value of $100 and a coupon rate of 5%, but Mark was able to purchase
              the bonds for $20 each. The bonds mature in the year 2050. What is the approximate yield on
              the bonds Mark purchased? Show your work.
              Solution:
              Yield is a figure that shows the return you get on a bond. The simplest version of yield is
              calculated using the following formula:
              Yield = coupon amount/market price.
              When we buy a bond at par, yield is equal to the interest rate. When the price changes, so does
              the yield.


               Current Yield =                            =      = 0.25 = 25%

              Coupon amount = 5% of $100 = 5
                                                          ** End of the Solution **
         ClassOf1 provides expert guidance to College, Graduate, and High school students on homework and assignment problems in
                       Math, Sciences, Finance, Marketing, Statistics, Economics, Engineering, and many other subjects.


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