Suppose you have a bond that pays a 6% coupon, matures in 15 years and has a current price of $850. If you expect to sell it in 5 years at $950, what is your approximate realized yield?
(For simplicity, assume an annual convention, and a $1,000 par value bond)
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Realized yield the annual rate of return we have earned on our investment. It is calculated by discounting the cash inflows and making them equal to the initial investment.
In this case, the initial investment is $850 (the ...
This solution shows how to calculate the approximate realized yield of a bond.