8 a \$1000 bond that pays 10\% interest is sold at a discount; the annual yield for that bond will be which of the following?

less than 10\%
0
10\%
more than 10\%

Question

8 a \$1000 bond that pays 10\% interest is sold at a discount; the annual yield for that bond will be which of the following?

less than 10\%
0
10\%
more than 10\%

Accepted Answer

{ "quality": "clear", "question_count": 1, "skills_matched": [ "step_cot", "multiple_choice_formatter", "explain_then_answer", "tutor", "mastery_adaptive_brevity" ], "needs_drawing": false, "concepts_used": [ "Bond Pricing", "Premium and Discount" ], "new_concepts": [ "Bond Yield", "Yield to Maturity" ], "current_concepts": [ "Bond Pricing", "Premium and Discount", "Bond Yield" ] } ## Define bond parameters Using the *Bond Pricing* and *Premium and Discount* knowledge points $$ \begin{aligned} &\text{Face Value } (F) = \$1000\ &\text{Coupon Rate } (C) = 10\%\ &\text{Annual Coupon Payment } (I) = F \times C = \$100\ &\text{Price } (P) < F \quad (\text{since sold at a discount}) \end{aligned} $$ ## Determine the annual yield Using the *Bond Pricing* knowledge point $$ \begin{aligned} &\text{Current Yield} = \frac{I}{P}\ &P < \$1000 \implies \frac{\$100}{P} > \frac{\$100}{\$1000} = 10\%\ &\text{Annual Yield} > 10\% \end{aligned} $$

Less than 10%

0

10%

More than 10%

{ "subject": "Business", "question_type": "Multiple Choice", "knowledge_point": [ "Business", "Finance", "Bond Yield" ] }

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QUESTION IMAGE

Question

Explanation:

Define bond parameters

Determine the annual yield

Answer: