AuthorTopic: realized yield question
Hollywood
@2014-05-21 00:23:00
bond pays 8% coupon, matures in 15 years and has a price of 825. if you expect to sell in 5 years at 940 what is your

realized yield.
17.1%
8.00%
11.89%
11.17%

answer is C. i'd appreciate any help on this one. -thanks
vtom2009
@2014-05-23 09:20:23
applebee, who told you payments are semiannually?
applebee
@2014-05-27 12:37:00
I thought it would be 11.17%.

What do you think? Anyone can help????
applebee
@2014-06-02 16:00:00
Ok, let us try again. Seems to me it all depends on the timing.

Assumes you wait until the end of year 5 and received all the coupon payment and then sell the bond for 940.

The cash flow is :
year 0 1 2 3 4 5
-825 80 80 80 80 1020

calculate the yield of this cash flow, it will be 11.89%

If you sell the bond before the end of year, say, before you got the last coupon payment of 40.
Then the cash flow is
-825, 80,80,80,80,40+940

In this case, the yield is 11.17%

Just my 2 cents, let me know if you see it differently.
vtom2009
@2014-06-22 11:04:11
That's elementary: any calculator TVM function:

PV=-825
N=5
PMT=80
FV=940

=> I/Y=11.8957

Pls send me 2 cents, -:)