Question

a 12- year bond with a par value of 1,000 and interest rate of 12 percent interst (6percent semiannyally). The current maret price of the bond is $700. This bonds expected rate of return will be g

Answer 1

Answer:

18.34 %

Explanation:

Bond holders usually expect to receive a rate that is offered on the market for similar bonds. this rate is the same as the Bond Yield and can be determined using financial calculator as follows ;

PV = - $700

FV = 1,000

N = 12

PMT = 1,000 x 12 % = $120

P/YR = 1

I/YR = ??

Inputting the values in the financial calculator as set above gives a required rate (I/YR ) for similar bonds of 18.34 %