Question

Claribel has a $500 bond with a 4% coupon. Claribel purchased this bond for $525. What is the yield of this new bond?

Answer 1

Yield is `3.81%`

Explanation:

As coupon is `4%`, a `$500` bond earns `$20` in a year.

Now as market price of bond is `$525`, but it earns `$20`

yield (rate of interest earned) is `(20xx100)/525=80/21=3.81%`