Question

Assume that today you have purchased a 5-year coupon bond with a
coupon interest rate of 12 percent at a price of $1,000 which also
happens to be its face value. Assume further that you
hold it for one year, pocket the coupon payment you receive at the
end of that year and then sell it. Also, at that time
the market interest rate has fallen to 5 percent. Find
your **rate of return**. Please answer in mathematical
way, not Excel.

Answer #1

**Let us calculate the worth of bond at the end of year
1**

Coupon per year=12% of face value=1000*12%=$120

No. of years left for maturity =n=4

Face Value of bond=FV=$1000

Rate of interest=i=5%

**Coupon's worth will be equal to the present value of
future cash flows**

Coupon's worth=120(P/A,5%,4)+1000(P/F,5%,4)

P/A,n,i) can be calculated as

(P/F,5%,4)=1/(1+0.05)^{4}=0.822702

**Coupon's worth after 1
year=120*3.545951+1000*0.822702=1248.22**

**Coupon's price after 1 year=P1=Coupon's worth after one
year=1248.22**

Coupon amount received in one year=C=120

**Investor's
return=(P1-Po+C)/Po=(1248.22-1000+120)/1000=36.82%**

A. You buy a 10-year US Treasury Bond with a coupon interest
rate of 5% and Face Value of $1,000. You decide to sell your bond
four years later when market interest rates have fallen to 4%. Find
the selling price of the bond.
B. Calculate the Annualized Holding Period Return on the
investment. Show your work.

A. You buy a 10-year US Treasury Bond with a coupon interest
rate of 5% and Face Value of $1,000. You decide to sell your bond
four years later when market interest rates have fallen to 4%. Find
the selling price of the bond.
B. Calculate the Annualized Holding Period Return on the
investment. Show your work.

You purchased a 5-year annual-interest coupon bond 1 year ago.
Its coupon interest rate was 6%, and its par value was $1,000. At
the time you purchased the bond, the yield to maturity was 4%. If
you sold the bond after receiving the first interest payment and
the bond's yield to maturity had changed to 3%, your annual total
rate of return on holding the bond for that year would have been
approximately _________.
0.6%
8.9%
5%
5.5%

1.
Assume you buy a bond with the following features
Bond maturity = 4
Coupon Rate = 5%
Face Value = $1,000
Annual Coupons
When you buy the bond the market interest rate = 4.50%
Immediately after you buy the bond the interest rate changes to
6.71%
What is the "reinvestment" effect in year 3 ?
2.
Bond E has the following
features:
Face value =
$1,000, Coupon Rate =
10%,
Maturity = 5 years, Yearly coupons
...

Consider a bond with the following characteristics today (Year
0):
Face Value=$1,000
Coupon Rate=4%
Interest Rate=5%
Time to maturity=13 years
What is the total yield in Year 4?

Suppose that today you buy a bond with an annual coupon rate of
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compounding periods. What price will your bond sell for after 2
years?
In Excel Please

Suppose that today you buy a bond with an annual coupon rate of
8 percent for $1,060. The bond has 15 years to maturity. Assume a
par value of $1,000. Two years from now, the YTM on your bond has
increased by 1 percent, and you decide to sell. Assume semiannual
compounding periods. What price will your bond sell for after 2
years?
In Excel Please

Six years ago you purchased a 15-year $1,000 bond with a coupon
rate of 4 percent. You now wish to sell the bond and read that
yields are 9 percent. What price should you receive for the
bond?
A$900.16
B$700.24
C$661.42
D$1,029.69

One year ago, you purchased an 8% coupon rate bond when it was
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time to maturity, a 6% YTM, and a par value of $1,000. The bondâ€™s
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rate of return on your investment?

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