You notice in the WSJ a bond that is currently selling in the market for $1,065 with a coupon of 11 % and a(n) 20-year maturity

Finance Jun 22, 2021

You notice in the WSJ a bond that is currently selling in the market for $1,065 with a coupon of 11 % and a(n) 20-year maturity. Using annual compounding, calculate the promised yield on this bond.
The bond's promised yield is
%. (Round to two decimal places.)

Expert Solution

Computation of Bond's Promised Yield using Rate Function in Excel:

=rate(nper,pmt,-pv,fv)

Here,

Rate = Bond's Promised Yield = ?

Nper = 20 years

PMT = $1,000*1
1% = $110

PV = $1,065

FV = $1,000

Substituting the values in formula:

=rate(20,110,-1065,1000)

Rate or Bond's Promised Yield = 10.22%

So, Bond's Promised Yield is 10.22%.

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