Question

Last year Janet purchased a $1,000 face value corporate bond with a 7% annual coupon rate and a 20-year maturity. At the time of the purchase, it had an expected yield to maturity of 6.89%. If Janet sold the bond today for $1,100.22, what rate of return would she have earned for the past year? Do not round intermediate calculations. Round your answer to two decimal places.

%

Answer #1

Value of Bond One year ago =

Where r is the discounting rate of a compounding period i.e. 6.89%

And n is the no of Compounding periods 20 years

Coupon 7%

=

= 1011.75371425

% Return = (1,100.22 - 1011.75371425) / 1011.75371425

= 8.74%

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