A bond with no expiration date has a face value of $10,000 and pays a ﬁxed 10 percent interest. If the market price of the bond rises to $11,000, the annual yield approximately equals
A) 11 percent.
B) 10 percent.
C) 9 percent.
D) 8 percent.

Question

Quizplus · Accepted Answer

The annual yield is calculated by dividing the fixed interest payment by the market price. The fixed interest payment is 10% of the face value, which is $1,000. The market price of the bond is $11,000. Therefore, the annual yield is approximately 9% ($1,000/$11,000 = 0.09 or 9%).

A Bond with No Expiration Date Has a Face Value