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 o Suppose that the market price of the bond in our example equals its theoretical price of 98.39 e The bond yield (continuously compounded)is given by solving 3e -y×0.5 +3e y×1.0 15 +3e +103e-×20 9839 to get y=0.06760676% Options, Futures, and other Derivatives 8th Edition Copyright O John C Hull 2012 15Bond 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 (continuously compounded) is given by solving to get y=0.0676 or 6.76%. Options, Futures, and Other Derivatives 8th Edition, Copyright © John C. Hull 2012 15 3 3 3 103 98 39 0 5 1 0 1 5 2 0 e e e e − y − y − y − y + + + = . . . .