Question 1: Ben Bonds

Ben Bonds carry a coupon of 6%, pay interest semiannually, have a face value of $1000 each, and mature in 20 years. You purchase them today at a price of $893.22 per bond. What is the yield on these bonds today?

7.00%

3.5%

3.00%

Continuing with Ben Bonds, suppose you hold them for the coming 5 years, and then decide to sell them. At the end of those 5 years, the yield on the bonds has dropped by 90 basis points from the time you bought them. At what price are you able to sell them?

$990.26

$1000

$995.75

What is your realized rate of return on your Ben Bonds investment?

7.13%

8.51%

4.25%