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Hi,
Would you mind helping me with this question?
RI Co has in issue 6% redeemable bonds quoted at 120% ex int
which of the following statement is consistent with the above information?correct answer:
interest yield 5%; redemption yield 4%interest yield = i/M.V= 5% I get this
however, what is the redemption yield and how can be calculated?
Thank you in advance,
SP
You cannot be asked or expected to calculate the redemption yield. However you are expected to know that it take account of the interest and also the gain or loss on redemption.
Here there will be a loss on redemption (because the repayment at nominal is less than the current market value) and so the redemption yield must be less than the interest yield (and in only one of the choices is this the case).
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