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6% Treasury stock is currently valued at $92 and is redeemable in one year’s time. What is the redemption yield?
A. 6%
B. 6.5%
C. 8.7%
D. 15.2%
Answer is D.
Sir can you explain how it is doing. I found nothing as this in BPP book. Please help me with that. Thank you in advance.You can buy 100 nominal now for 92.
After 1 year you receive 6 interest and the redemption amount at par, 100.
Profit = 6 + (100 – 92) = 14
You make 14 on an investment costing 92, so the yield is
14 /92 = 15.2%
Treasury Stock is a gilt (ie ‘gilt-edged’ and backed by the Government). The standard method of valuation is per 100 nominal.
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