What is the approximate yield over the 4 year window on a 10% coupon bond, $1000 par, which is currently selling for $940, if you plan to hold it for 4 years? In 4 years you expect the discount rate on similar bonds to be 8% ? The maturity of the bonds today is 10 years.

What is the approximate yield over the 4 year window on a 10% coupon bond, $1000 par, which is currently selling for $940, if you plan to hold it for 4 years? In 4 years you expect the discount rate on similar bonds to be 8% ? The maturity of the bonds today is 10 years.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...

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Question

What is the approximate yield over the 4 year window on a 10% coupon bond, $1000 par, which is currently selling for $940, if you plan to hold it for 4 years? In 4 years you
expect the discount rate on similar bonds to be 8%? The maturity of the bonds today is 10 years.

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Step 1: The approximate yield is computed as follows:

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Step 2: Calculate the total coupon payments receivable over the 4-year window:

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Step 3: Calculate the approximate yield over the 4-year window:

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