QQuestionFinance
QuestionFinance
What would the yield be on a 1.75 percent, $1,000, 10 -year Treasury bond if the market price of the bonds were:
Instructions: Round your response to two decimal places.
a. $1,000? = ................%
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Answer
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Step 1: Determine the yield if the market price of the bond is equal to its face value.
Yield = 0.0175 = 1.75%
When the market price of a bond is equal to its face value, the yield is equal to its coupon rate. This is because the investor will receive the full face value of the bond and all coupon payments. The coupon rate for this bond is given as 1.75%, or 0.0175 in decimal form. So,
Step 2: Check the given market price.
The problem states that the market price of the bond is $1,000, which is the same as its face value. Therefore, the yield is indeed 1.75%.
Final Answer
The yield is 1.75%.
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