Question

14. An investor purchases a just issued 30-year, 10.500% semi-annual coupon bond at 104.079 percent of par value and sells it after 10 years. The bond’s yield to maturity is 9.584% at time of sale, and rises to 10.100% immediately after the purchase but before the first coupon is received. All coupons are reinvested to maturity at the new yield to maturity. Show the sources of return below.

Because the yield to maturity changed between bond purchase and sale, the final bond price is not on the constant yield price trajectory curve. A capital gain or loss is realized on the sale. What is the capital gain or loss for this bond transaction?

Sale price of the bond after 10 years:

Answer #1

Total coupon payments: =10.5%*100/2*2*10=105.00000

Sale price of the bond after 10 years:

I/Y=10.1%/2

N=20*2

PMT=-10.5%*100/2

FV=-100

CPT PV=103.40845

Reinvestment income from coupons:

N=2*10

I/Y=10.1%/2

PMT=-10.5%*100/2

PV=0

CPT FV=174.51643

Reinvestment income=174.51643-105=69.51643

Total value at 10 years: =103.40845+69.51643+105=277.92488

Realized rate of return (horizon yield) at maturity:

N=10

FV=-277.92488

PMT=0

PV=104.079

CPT I/Y=10.32055%

capital gain=103.40845-104.079=-0.67055

SO there exists capital loss of 0.67055

14. An investor purchases a just issued 30-year, 10.500%
semi-annual coupon bond at 104.079 percent of par value and sells
it after 10 years. The bond’s yield to maturity is 9.584% at time
of sale, and rises to 10.100% immediately after the purchase but
before the first coupon is received. All coupons are reinvested to
maturity at the new yield to maturity. Show the sources of return
below.
(a) Total coupon
payments:
(b) Reinvestment income from
coupons:
(c) Sale price...

. An investor purchases a just issued 30-year, 10.500%
semi-annual coupon bond at 104.079 percent of par value and sells
it after 15 years. The bond’s yield to maturity is 9.584% at time
of sale, and falls to 9.200% immediately after the purchase but
before the first coupon is received. All coupons are reinvested to
maturity at the new yield to maturity. Does the investor realize a
capital gain or loss on the sale, and by what amount (expressed as...

An investor purchases a just-issued 10-year, 9.500% semiannual
coupon note at 97.805 percent of par value and sells it after 5
years. The bond’s yield to maturity is 9.850% at time of sale, and
rises to 10.100% immediately after the purchase but before the
first coupon is received. Assume all coupons are reinvested to
maturity at the new yield to maturity. What is the realized rate of
return (horizon yield) after 5 years?
A.
9.770%
B.
9.850%
C.
9.973%
D....

You purchased a $1,000 par value 20-year 4% coupon bond
with semi-annual payments for $1,000. Immediately after the
purchase, interest rates increased and the yield to maturity and
coupon reinvestment rate increased to 6%. (the coupons themselves
stayed at 4%) Interest rates and the yield to maturity remain at 6%
and you sell the bond 5 years later, having reinvested the coupons
at 6%. How much is in your account (proceeds from bond sale and
value of all coupons after...

Suppose you purchase a 8-year, 6% semi-annual coupon bond for
89.153. Immediately after you purchase the bond, the yield for
equivalently risk bonds decreases by 100 basis points. However,
instead of holding the bond until maturity, you plan to hold the
bond for 3 years and then sell it. All coupons will be reinvested
at the prevailing yield on equivalently risky bonds. What will be
your return on this investment in this scenario? Round your answer
to three decimal places.

For the? following, assume the normal case that bond coupons
are? semi-annual: ?
a) What is the yield to maturity? (YTM) on a 9?-year, 6.8?%
coupon bond if the bond is currently selling for? $1,000? ? (Assume
semi-annual? coupons) %
?b) What is the YTM on the above bond if the value today is
?$961.08?? %
?c) For the bond in ?a) above?, what is your realized? (actual)
EAR if immediately after you purchase the bond market? rates, and
the...

Suppose an investor can purchase a 6-year 9% coupon bond with a
par value of $100 that pays interest semi-annually. The yield to
maturity for this bond is 10% on a bond-equivalent yield basis.
What is the coupon interest, capital gain/loss and reinvestment
income associated with this bond over its 6-year life? Assume that
the reinvestment rate is equal to the yield to maturity.

Suppose an investor can purchase a 6-year 9% coupon bond with a
par value of $100 that
pays interest semi-annually. The yield to maturity for this bond is
10% on a bond-equivalent yield basis.
What is the coupon interest, capital gain/loss and reinvestment
income associated with this bond over
its 6-year life? Assume that the reinvestment rate is equal to the
yield to maturity.

Consider a bond with annual coupon payments. You purchased the
bond when it was originally
issued. Immediately thereafter, the YTM had changed and remained at
this new level
indefinitely. Today, at the end of year 4 (immediately after the
4th coupon payment), your bond
investment has the following characteristics:
Total Interest (Coupons) =
Interest-on-Interest (I2) =
Capital Gains =
Realized Return (annual) =
$5,476.75
$1,047.89
$759.06
13.773973%
Hint: Do not assume any face value or any time to maturity at...

Two years ago an investor purchased a 4% semi-annual compounding
coupon bond with a remaining maturity of 20 years at a price of (at
that time) 90% of par. Today, i.e. two years after the purchase,
the investor realizes that the bond has exactly the same price like
it had two years ago (i.e. 90%). Based on this information, which
of the following answers is correct:
a) The YTM of the 4% Bond today is the higher than two years...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 5 minutes ago

asked 7 minutes ago

asked 7 minutes ago

asked 8 minutes ago

asked 9 minutes ago

asked 9 minutes ago

asked 10 minutes ago

asked 12 minutes ago

asked 12 minutes ago

asked 12 minutes ago

asked 12 minutes ago

asked 13 minutes ago