Answer to Question #181602 in Macroeconomics for hodge

Question

What would the yield be on the 2.0 percent, $1000, 10-year Treasury bond if the market price of the bonds were

925$

 $750?

 $1,100?

Answer 1

Answer:

2.16%

2.67%

1.82%

Explanation:

The yield can be computed using the yield formula which coupon payment divided by price.

The coupon payment=face value*coupon rate

face value is $1,000

coupon rate is 2%

coupon payment=2%*$1,000=$20

when price is $925:

yield =$20/$925=2.16%

when price is $750

yield=$20/$750=2.67%

when price is $1,100

yield =$20/$1,100=1.82%