Trevor Price bought 10-year bonds issued by Harvest Foods five years ago for $95

Question

Trevor Price bought 10-year bonds issued by Harvest Foods five years ago for $952.66. The bonds make semiannual coupon payments at a rate of 8.4 percent. If the current price of the bonds is $1,005.77, what is the yield that Trevor would earn by selling the bonds today? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

Effective annual yield % Trevor Price bought 10-year bonds issued by Harvest Foods five years ago for $952.66. The bonds make semiannual coupon payments at a rate of 8.4 percent. If the current price of the bonds is $1,005.77, what is the yield that Trevor would earn by selling the bonds today? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

Explanation / Answer

Number of years left = 5 years

coupon payment = 8.4%*1000/2=42

1,005.77 = 42/(1+r/2) + 42/(1+r/2)^2 + 42/(1+r/2)^3........ 1042/(1+r/2)^10

r= 8.26%

Effective annual yield = (1+8.26%/2)^2-1 = 8.43%

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