4.6 Bond yield The bond yield is the discount rate that makes the present value of the cash flows on the bond equal to the market price of the bond Suppose that the market price of the bond in our example equals its theoretical price of 98.39 The bond yield is given by solving ex0.5 +3ey10+3e-y 103ey×20 9839 to get y=0.0676 or 6.76% Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University4.6 Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University Bond Yield • The bond yield is the discount rate that makes the present value of the cash flows on the bond equal to the market price of the bond • Suppose that the market price of the bond in our example equals its theoretical price of 98.39 • The bond yield is given by solving to get y=0.0676 or 6.76%. 3 3 3 103 98 39 0 5 1 0 1 5 2 0 e e e e − y − y − y − y + + + = . . . .