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Question 2 Today you purchase a 9-year bond at a YTM of 11%. The bond pays...

Question 2 Today you purchase a 9-year bond at a YTM of 11%. The bond pays coupons annually and has a coupon rate of 9%. What is your 1-year rate of return if you sell the bond 1-year from now at a YTM of 11%. Input your answer in decimals, not percent. Answer to 4 decimal places, for example 0.1234.

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Answer #1


Let Par Value = 1000
Maturity =9
YTM = 11%
Coupon = 9%*1000 =90
Price of Bond = PV of Coupons + PV of Par Value = 90*(1-(1+11%)-9)/11% + 1000/(1+11%)9 = 889.26

Maturity after 1 year = 9-1 = 8
YTM after 1 year =11%
Price of Bond = PV of Coupons + PV of Par Value = 90*(1-(1+11%)-8)/11% + 1000/(1+11%)8 = 897.08

Return = (897.08-889.26+90)/889.26 = 0.1100 or 11%

I feel there is now an error in YTM in the question. Answer might need change

Please Discuss in case of Doubt

Best of Luck. God Bless
Please Rate Well

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