Question

Layla bought a 10% coupon bond for $1000. The current yield on her bond is 10%...

Layla bought a 10% coupon bond for $1000. The current yield on her bond is 10% as well and the interest rate is 10%. The bond matures in 4 years time . Layla sells the bond after holding it for 2 years at the end of the 2nd year. The interest rate in the 4th year increases to 25% and remains until maturity. What is the price that Layla sold the coupon bond at?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Price of the bond at year 2 = PV of coupon received at year 3 + PV of coupon received at year 4 + PV of the face value received at year 4

PV at time 0 = Cash flow received at time n / ((1+r)^n)

We need to discount all the cash flows to year 2.

We will use different interest rates to discount the cash flows at year 3 and year 4.

Years Discounting period Cash Flows Discounting rate PV
3 1 100 10% 90.90909
4 2 1100 25% 704
Price of the bond 794.9091

Layla sold the coupon bond at $794.9091

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Karen just bought a 10 year, 6 percent coupon bond with 1000 par for 850. if...
Karen just bought a 10 year, 6 percent coupon bond with 1000 par for 850. if she sells this bond two years later for 920, what is the realized yield per year for her two year holding (with semiannual interests)?
​(Bond valuation​) At the beginning of the​ year, you bought a $1000 par value corporate bond...
​(Bond valuation​) At the beginning of the​ year, you bought a $1000 par value corporate bond with an annual coupon rate of 16 percent and a maturity date of 15 years. When you bought the​ bond, it had an expected yield to maturity of 8 percent. Today the bond sells for $1970. a. What did you pay for the​ bond? b. If you sold the bond at the end of the​ year, what would be your​ one-period return on the​...
At the beginning of the? year, you bought a ?$1000 par value corporate bond with an...
At the beginning of the? year, you bought a ?$1000 par value corporate bond with an annual coupon rate of 13 percent and a maturity date of 12 years. When you bought the? bond, it had an expected yield to maturity of 12 percent. Today the bond sells for ?$1200. a. What did you pay for the? bond? b. If you sold the bond at the end of the? year, what would be your? one-period return on the? investment? Assume...
At the beginning of the​ year, you bought a $1000 par value corporate bond with an...
At the beginning of the​ year, you bought a $1000 par value corporate bond with an annual coupon rate of 15 percent and a maturity date of 13 years. When you bought the​ bond, it had an expected yield to maturity of 16 percent. Today the bond sells for ​$1060. a. What did you pay for the​ bond? b. If you sold the bond at the end of the​ year, what would be your​ one-period return on the​ investment? Assume...
A 25 year, $1000 par value bond has an 8.5% annual payment coupon. The bond currently...
A 25 year, $1000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $790. If the yield to maturity remains at its current rate, what will the price be 5 years from now?
A bond has a coupon ate of 10%, a 1000$ face value, matures in 5 years,...
A bond has a coupon ate of 10%, a 1000$ face value, matures in 5 years, has a yield of maturity of 15% percent and pays interest annually. What is the current yield?
If a bond has face value $1000, annual coupon rate of 10% is bought for $900...
If a bond has face value $1000, annual coupon rate of 10% is bought for $900 and sold 2 years later for $1100 what is holding period return? Annualized return?
A bond has a 10 percent coupon rate, makes annual payments, matures in 12 years, and...
A bond has a 10 percent coupon rate, makes annual payments, matures in 12 years, and has a yield-to-maturity of 7 percent. 1. Given this: a. What is the price of the bond today? b. What is the bond’s current yield? c. Based on the yield-to-maturity and the current yield, what is the bond’s expected capital gains yield over the next year? 2. One year from now the bond will have 11 years until maturity. Assume market interest rates remain...
Chavez Industries, has an outstanding bond that has a $1000 face value and a 6.4% coupon...
Chavez Industries, has an outstanding bond that has a $1000 face value and a 6.4% coupon rate. Interest is paid semi-annually. The bond has 7 years remaining until it matures. Today the interest rate on similar risk bonds is 5.7% and it is expected to remain at this level for many years in the future. Compute the following: A). The bond’s current price B). The bond’s price one year from today C). The current yield the bond will generate this...
You bought a 10-year zero-coupon bond with a face value of $1,000 and a yield to...
You bought a 10-year zero-coupon bond with a face value of $1,000 and a yield to maturity of 2.7% (EAR). You keep the bond for 5 years before selling it. The price of the bond today is P 0 = F ( 1 + r ) T = 1,000 1.027 10 = 766.12 If the yield to maturity is still 2.7% when you sell the bond at the end of year-5, what is your personal ANNUAL rate of return?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT