Question

A bond with a face value of $1,000 has 10 years until maturity, carries a coupon rate of 7.9%, and sells for $1,110. Interest is paid annually.

**a.** If the bond has a yield to maturity of 10.1%
1 year from now, what will its price be at that time? **(Do
not round intermediate calculations. R****ound your
anser to nearest whole number.****)**

**b.** What will be the annual rate of return on
the bond? **(Do not round intermediate calculations. Enter
your answer as a percent rounded to 2 decimal places. Negative
amount should be indicated by a minus sign.)**

**c.** Now assume that interest is paid
semiannually. What will be the annual rate of return on the
bond?

Slightly greater than your part b answer

Slightly less than your part b answer

**d.** If the inflation rate during the year is 3%,
what is the annual real rate of return on the bond? (Assume annual
interest payments.) **(Do not round intermediate
calculations. Enter your answer as a percent rounded to 2 decimal
places. Negative amount should be indicated by a minus
sign.)**

Answer #1

a. Price of the bond is calculated using excel PV function as in =PV(rate,nper,pmt,fv) where rate =0.101, nper =9, PMT =79 and FV =1000

Price of the bond on year later =PV(0.101,9,79,1000) =
**$873.80**

b. Annual rate of return = Price after one year - purchase price + annual coupon = 873.80-1110+79 = -157.2

Annual rate of return = -157.2/1110 = -14.16%

Annual rate of return **-14.16%(Negative)**

c. If interest is paid semi annual rate of return is
**Slightly less than your part b answer**

d. If inflation is 3%

Real rate = (Nominal - inflation)/(1+inflation ) = (-0.1416-0.03)/(1+0.03) = -1666 = -16.66%

**Annual real rate on bond = -16.66%
(Negative)**

A bond with a face value of $1,000 has 10 years until maturity,
carries a coupon rate of 8.8%, and sells for $1,120. Interest is
paid annually. (Assume a face value of $1,000 and annual coupon
payments.)
a. If the bond has a yield to maturity of 9.2%
1 year from now, what will its price be at that time? (Do
not round intermediate calculations.
Round your answer to nearest whole
number.)
b. What will be the rate of return...

A bond with a face value of $1,000 has 10 years until maturity,
carries a coupon rate of 7.4%, and sells for $1,160. Interest is
paid annually. (Assume a face value of $1,000 and annual coupon
payments.)
a. If the bond has a yield to maturity of 10.6% 1 year from now,
what will its price be at that time? (Do not round intermediate
calculations. Round your answer to nearest whole number.)
b. What will be the rate of return...

Problem 6-17 Bond Returns (LO2, 3)
A bond with a face value of $1,000 has 10 years until maturity,
carries a coupon rate of 7.2%, and sells for $1,180. Interest is
paid annually.
a. If the bond has a yield to maturity of 10.8%
1 year from now, what will its price be at that time? (Do
not round intermediate calculations. Round your
answer to nearest whole number.)
b. What will be the annual rate of return on
the bond?...

A bond with a face
value of $1,000 has 14 years until maturity, carries a coupon rate
of 8.6%, and sells for $1,104.
a.
What is the current yield on the bond? (Enter your answer
as a percent rounded to 2 decimal places.)
b.
What is the yield to maturity if interest is paid once a year?
(Do not round intermediate calculations. Enter your answer
as a percent rounded to 4 decimal places.)
c.
What is the yield to maturity...

A 25-year maturity bond with face value of $1,000 makes annual
coupon payments and has a coupon rate of 8.1%. (Do not
round intermediate calculations. Enter your answers as a percent
rounded to 3 decimal places.)
a. What is the bond’s yield to maturity if the
bond is selling for $910?
b. What is the bond’s yield to maturity if the
bond is selling for $1,000?
c. What is the bond’s yield to maturity if the
bond is selling for...

A 6.70 percent coupon bond with 24 years left to maturity is
priced to offer a 5.8 percent yield to maturity. You believe that
in one year, the yield to maturity will be 6.3 percent.
What would be the total return of the bond in dollars?
(Negative amount should be indicated by a minus sign. Do
not round intermediate calculations and round your final answer to
2 decimal places.)
Total return ?
$
What would be the total return of...

Suppose that you buy a 1-year maturity bond with a coupon of
9.0% paid annually. If you buy the bond at its face value, what
real rate of return will you earn if the inflation rate is 2%? 4%?
11.00%? (Do not round intermediate calculations. Enter your
answers as a percent rounded to 2 decimal places. Negative amount
should be indicated by a minus sign.)
Real Rate of Return
2%
4%
11.00%

9.
Bond P is a premium bond with a coupon rate of 10 percent. Bond
D has a coupon rate of 5 percent and is selling at a discount. Both
bonds make annual payments, have a YTM of 7 percent, and have five
years to maturity.
a.
What is the current yield for Bond P and Bond D? (Do not
round intermediate calculations and enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
b.
If...

Bond P is a premium bond with a coupon rate of 10 percent. Bond
D has a coupon rate of 5 percent and is currently selling at a
discount. Both bonds make annual payments, have a YTM of 7 percent,
and have nine years to maturity.
What is the current yield for bond P and bond D? (Do not
round intermediate calculations. Enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
Current
yield
Bond P...

Bond P is a premium bond with a coupon rate of 8 percent. Bond D
has a coupon rate of 3 percent and is currently selling at a
discount. Both bonds make annual payments, have a YTM of 5 percent,
and have seven years to maturity.
a.
What is the current yield for Bond P and Bond D? (Do not
round intermediate calculations and enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
b.
If...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 3 minutes ago

asked 3 minutes ago

asked 12 minutes ago

asked 18 minutes ago

asked 22 minutes ago

asked 32 minutes ago

asked 35 minutes ago

asked 37 minutes ago

asked 45 minutes ago

asked 47 minutes ago

asked 48 minutes ago

asked 1 hour ago