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Question 1 of 4

Solved Problems
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You must read each slide, and complete any questions on the slide, in sequence.

Which of the following bond-pricing formulas is correct?

The yield of a bond times its price equals the total interest rate on this bond. Alternatively, this makes the yield equal to the interest rate divided by the price of bond.
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Suppose that a bond’s yield is 2% and the price is $1,000. How much are the total interest payments on this bond, if Yield = Interest rate / Price of bond? $

If Yield = Interest rate / Price of bond, then Interest rate = Price of bond × Yield. In this case, total interest payments = $1,000 × 2% = $20.
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Suppose that a bond’s total interest payments are $400 and its yield is 5%. How much is this bond’s price? $

If Yield = Interest rate / Price of bond, then Price of bond = Interest rate / Yield. In this case, the bond’s price = $400 / 0.05 = $8,000.
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Suppose that a bond’s total interest payments are valued at $12,000 and its price is $1,000,000. How much is its yield? Enter the answer as a percentage, rounded to two decimal places. %

If Yield = Interest rate / Price of bond, then in this case, yield = $12,000,000 / $1,000,000 = 0.012 or 1.20%.
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