Question

A newly issued 10-year maturity, 10% coupon bond making annual
coupon payments is sold to the public at a price of $933. What will
be an investor’s taxable income from the bond over the coming year?
The bond will not be sold at the end of the year. The bond is
treated as an original issue discount bond. **(Round your
answer to 2 decimal places.)**

Answer #1

Annual coupon = coupon rate*par value = 10%*1,000 = 100

YTM: FV (par value) = 1,000; PMT (annual coupon) = 100; PV (current price) = -933; N (number of coupons) = 10, solve for RATE.

YTM = 11.145%

Using constant yield method, price of the bond after one year will be: FV = 1,000; PMT = 100; N = 9; rate = 11.145%, solve for PV.

Price = 936.98

Increase in price over one year = price after one year (at same yield) - current price = 936.98 - 933 = 3.98

Taxable income = annual coupon + increase in price = 100 + 3.98 = 103.98 (Answer)

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intermediate calculations. Round your answer to 2 decimal
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Round you answer to the nearest penny. Answer:

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) =
$5,476.75
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Omit the "$" sign in your response.)
Yield to maturity of
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$
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Holding-period return
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YTM
Duration
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