Question

An investor buys a 9-year, 6.9% annual coupon bond at par ($100). After the purchase and before the first coupon is received, interest rates increase to 8.9% (assume a flat spot rate curve). The investor sells the bond after 7 years (right after receiving the 7th coupon payment). What is this investor's realized annual return in these 7 years?

Assume annual compounding, and that interest rates remain at 8.9% over the entire holding period.

Answer #1

Given about a bond,

Investor purchase a 9 year bond at par value.

Som purchase price = $100

coupon rate = 6.9% annually,

=> annual coupon payment = 6.9% of 100 = $6.9

he sold the bond after 7 years, when interest rate were 8.9%

So, price of bond after 7 years is calculated using formul

PV = C/(1+r) + (FV+C)/(1+r)^2 = 6.9/1.089 + 106.9/1.089^2 = $96.48

So, he sold the bond after 7 years at $96.48.

Realised return can be calculated on financial calculator using following values:

FV = 96.48

PV = -100

N = 7

PMT = 6.9

compute for I/Y, we get I/Y = 6.49%

So, realised return on the bond is 6.49%

An investor buys a 9-year, 6.9% annual coupon bond at par
($100). After the purchase and before the first coupon is received,
interest rates increase to 8.9% (assume a flat spot rate curve).
The investor sells the bond after 7 years (right after receiving
the 7th coupon payment). What is this investor's realized annual
return in these 7 years?
Assume annual compounding, and that interest rates remain at
8.9% over the entire holding period.

An investor buys a bond that has a 5-year life, an annual coupon
rate of 5.5%, and is currently trading at a Yield to Maturity of
5.5%. The coupons are paid semi-annually, and the bond has a par
value of $1,000. After holding the bond for 1-year, the bonds Yield
to Maturity has decreased from 5.5% to 4.0%. Assume that the
investor has received a full year of coupon payments.
What is this investors Rate of Return from this investment?...

A 3-year bond carrying 3.4% annual coupon and $100-par is
putable at par 1 year and 2 years from today. Calculate the value
of the putable bond under the forward rate curve below.
1-year spot rate: 1.9%;
1-year spot rate 1 year from now: 2.8%;
1-year spot rate 2 years from now: 4.0%.
Assume annual compounding. Round your answer to 2 decimal places
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A 3-year bond carrying 2.2% annual coupon and $100-par is
putable at par 1 year and 2 years from today. Calculate the value
of the putable bond under the forward rate curve below.
1-year spot rate: 2.1%;
1-year spot rate 1 year from now: 3.3%;
1-year spot rate 2 years from now: 4.2%.
Assume annual compounding. Round your answer to 2 decimal places
(nearest cent).

A 3-year bond carrying 3.5% annual coupon and $100-par is
putable at par 1 year and 2 years from today. Calculate the value
of the putable bond under the forward rate curve below.
1-year spot rate: 2.1%;
1-year spot rate 1 year from now: 2.6%;
1-year spot rate 2 years from now: 4.3%.
Assume annual compounding. Round your answer to 2 decimal places
(nearest cent).

An investor buys a bond with a coupon rate of 7% for $1024.61.
The bond pays interest semiannually. Exactly one year later, just
after receiving the second coupon payment, the investor sells the
bond for $1026.93. What was the investor’s rate of return over the
year from owning the bond?

A 3-year bond carrying 3.1% annual coupon and $8,000-par is
putable at par 1 year and 2 years from today. Calculate the value
of the underlying straight bond under the forward rate curve below.
1-year spot rate: 1.7%; 1-year spot rate 1 year from now: 2.8%;
1-year spot rate 2 years from now: 4.3%. Assume annual compounding.
Round your answer to 2 decimal places (nearest cent).

A 3-year bond carrying 3.4% annual coupon and $10,000-par is
putable at par 1 year and 2 years from today. Calculate the value
of the underlying straight bond under the forward rate curve below.
1-year spot rate: 2.2%; 1-year spot rate 1 year from now: 2.8%;
1-year spot rate 2 years from now: 4%. Assume annual compounding.
Round your answer to 2 decimal places (nearest cent).

One year ago, an investor purchased a 10-year, $1,000
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Now, one year later, interest rates remain unchanged at 8%. If the
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A. a capital gain of $80.
B. a capital loss of $80.
C. no capital gain or loss.

6. A 3-year bond carrying 3.4% annual coupon and $5,000-par is
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1-year spot rate: 2.1%;
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Assume annual compounding. Round your answer to 2 decimal places
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