. 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 % of PAR)?
Total coupon payments: =10.5%*100/2*2*15=157.50
Sale price of the bond after 15 years:
Reinvestment income from coupons:
Total value at 15 years: =110.46+168.27+157.50=436.23
Realized rate of return (horizon yield) at maturity:
So there exists capital gain of 6.38%
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