Question

# One year ago, you purchased an 8% coupon rate bond when it was first issued and...

One year ago, you purchased an 8% coupon rate bond when it was first issued and priced at its face value of \$1,000. Yesterday the bond paid its second semi-annual coupon. The bond currently has 7 years left until maturity and has a yield to maturity of 12%. If you sell the bond today, what will your return have been from this investment during the year you held the bond and collected the coupon payments?

Price of Bond Today = "PV(rate, nper, pmt, [fv])"

• Rate    Required. The interest rate per period.

• Nper    Required. The total number of payment periods in an annuity.

• Pmt    Required. The payment made each period and cannot change over the life of the annuity.

• Fv    Optional. The future value, or a cash balance you want to attain after the last payment is made.

Price of Bond Today = "PV(rate, nper, pmt, [fv])"

Price of Bond Today = "PV(0.06, 14, 40, 1000)"

Price of Bond Today = \$814.10

Return on Investment = (Sale Price - Purchase + Coupon) / Purchase Price

Return on Investment = (814.10 - 1000 + 80) / 1000

Return on Investment = -10.60%

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