Answer:
The yield of this new bond is approx 3.8%.
Step-by-step explanation:
Given : Claribel has a $500 bond with a 4% coupon. Claribel purchased this bond for $525.
To find : What is the yield of this new bond?
Solution :
As coupon is 4 % , a $ 500 bond earns is given by,
[tex]4\% \text{ of } 500= 0.04\times 500= $20[/tex]
A $ 500 bond earns $ 20 in a year.
Now as market price of bond is $ 525 , but it earns $ 20
The rate of interest earned is
[tex]\frac{20\times 100}{525}= \frac{80}{21}=3.81\%[/tex]
Therefore, the yield of this new bond is approx 3.8%.
