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Q:8% treasury stock is currently valued at $88 and is redeemable in one year,s time .What is redemption yield?
A)6%
B)8%
C)10%
D)12%
The right answer is B but cannot figure out any question about calculating redemption yield.Can anyone here please explain ?The ‘redemption yield’ or ‘yield to maturity’ reflects the annual income and expected capital gain or loss from holding the bond.
So, for investing 88 now, in 1 year you will get interest of 8 and will make a gain of 12 (100 – 88). The redemption yield is therefore (8+ 12))/88 = 22.7%
Either the question is wrong or you have mistyped something.
@Gromit said:
The ‘redemption yield’ or ‘yield to maturity’ reflects the annual income and expected capital gain or loss from holding the bond.So, for investing 88 now, in 1 year you will get interest of 8 and will make a gain of 12 (100 – 88). The redemption yield is therefore (8+ 12))/88 = 22.7%
Either the question is wrong or you have mistyped something.
Well i am 100% sure i did not type commit error.You may be right the question is wrong.Kaplan make more errors than BPP.
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