A 20 year $100 par-value bond with 5% coupon rate with annual coupon payment is bought at a discount price of $80.

a. What is the yield?

b. If I can deposit the coupon payment into a bank account paying 4%

annually, what is my combined yield? That is, what is the annual yield

to go from $80 to the balance of the account plus the $100 redemption.

c. This bond is callable after 15 years (at par) and I could deposit the

redeemed amount in an account paying 4%, what is my annual yield

for this 20-year period.

the answer is 200

step-by-step explanation:

the way the question is worded, it seems to imply the $264 interest is simple interest, not compound interest.

the simple interest for 2 years is $264; the simple interest for 1 year is $132.

$132 interest on a $600 investment means an interest rate of (132/600)*100 = 22%.

the value of $200 at 22% interest compounded annually for three years is

200%281.22%29%5e3

the amount of interest is that value, minus the original $200.

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step-by-step explanation: