5.6 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 our example equals its theoretical price of 98.39 The bond yield is given by solving Fe xo 5 +3e-y×10 +3e-y×15+103e-y×20=9839 y×1.5 to get y=0.0676 or 6.76% Options, Futures, and other Derivatives, 5th edition 2002 by John C. HullOptions, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 5.6 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 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 + + + = . . . .