**Question:**A bond with face value $10,000 pays i(2) =9%. An investor buys it for $10,500 and sells it 4 years later for $10,200. Calculate the yield rate, i(2), earned by the investor over this period using the **method of averages**. **(answer is 7.97%)**

**Answer:**

YTM = [ [ Interest + (Selling price – Purchase Price )/n ] / (Selling price + Purchase Price) / 2 ] * 2

YTM = [ 10000*9%*50% + (10200-10500)4*2 ] / ( 10200+10500) / 2

YTM = 0.0797

**YTM is 7.97%**