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RI co has in issue 6% redeemable bonds, quoted at 120% ex int.
Which of the following statements is consistent with the above information?
A) Interest yield 6%; redemption yield 4%
B) Interest yield 6%; redemption yield 8%
C) Interest yield 5%; redemption yield 4%
D) Interest yield 5%; redemption yield 8%( i don’t know how to calculate Interest yield and redemption)
The interest yield is 6/120 = 5%
You cannot be asked to calculate the redemption yield, but you are expected to know what it is. Since the redemption will be at $100 which is lower than the market value of $120, the redemption yield will be lower that the interest yield. Only one of the answer (c) has this.
Our free lectures deal with this 🙂
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