Question

You just bought a bond that will mature in 3 years. The face value of the bond is $1,000. The bond pays annual coupons at 6% coupon rate. The yield to maturity of the bond is 6%.

- What is the current price of the bond?
- What is the return on the bond if you hold it for one year (you sell it at the end of next year)? Explain.

Suddenly, the interest rates increased, so the new yield to maturity of the bond is now 8%. Assume no time has elapsed since the change in YTM from 6% to 8%, i.e. the change is instantaneous.

- What is the new return on the bond by holding it for one year (you sell it at the end of next year)?
- Compare you answers in c) and b) and explain the difference.

Answer #1

You just bought a newly issued bond which has a face value of
$1,000 and pays its coupon once annually. Its coupon rate is 5%,
maturity is 20 years and the yield to maturity for the bond is
currently 8%.
Do you expect the bond price to change in the future when the
yield stays at 8%? Why or why not? Explain. (No calculation is
necessary.)
2 marks)
Calculate what the bond price would be in one year if its...

One year ago, you bought a bond at a price of $992.6000.The bond
pays coupons semi-annually, has a coupon rate of 6% per year, a
face value of $1,000 and would mature in 5 years. Today, the bond
just paid its coupon and the yield to maturity is 8%. What is your
holding period return in the past year? (suppose you did not
reinvest coupons)

Bond A is a $1,000, 6% quarterly coupon bond with 5 years to
maturity.
(a) If you bought Bond A today at a yield (APR) of 8%, what is
your purchase price? Is this a premium or discount bond? Why?
(b) One year later, Bond A's YTM (APR) has gone down to 6% and
you sell it immediately after receiving the coupon.
(i) What is the current yield?
(ii) What is the capital gains yield?
(iii) What is the one-year...

Consider a bond that pays 6% annual coupon on a face value of
$1000 and has 5 years to maturity. Suppose you buy the bond at a
time when its yield to maturity is 10%. Assumer further that
immediately after you buy the bond, the market interest rate YTM
declines to 8%. You hold the bond for two years and sell it at the
end of the second year when YTM is still 8%.
a) Calculate the annualized two year...

Bond Valuation
C) Suppose that Joan just bought a 15-year bond
for $902.71. The bond has a coupon rate equal to 7 percent, and
interest is paid semiannually. What is the bond’s yield to maturity
(YTM)? If Joan holds the bond for the next three years and its YTM
does not change during that period, what return will she earn each
year? What portion of the annual return represents capital gains
and what portion represents the current yield?
D) Suppose...

On the issue date, you bought a 30-year maturity, 8% semi-annual
coupon bond. The bond then sold at YTM of 7%. Now, five years
later, the similar bond sells at YTM of 6%. If you hold the bond
now, what is your realized rate of return for the 5-year holding
period? (do not solve using excel)

1) A bond will mature in 20 years. It has a 5% coupon rate and
will pay annual coupons. If the bond has a face value of $1,000 and
a 4% yield to maturity, what should be the price of the bond today?
What if YTM goes up to 5%? What if YTM goes up to 6%?
(2) What would be the price of the bond above in (1) if the
coupons were paid semiannually?
(3) What is the relationship...

on the issue date you bought a 20 year maturity 6%
semiannual coupon Bond the bond then sold at YTM of 7% now four
years later the similar Bond sells at YTM of 5% if you hold the
bond now what is your realized rate of return for the 4-year
holding.

On the issue date you bought a 20 year maturity, 6%
semiannual coupon Bond. The bond then sold at YTM of 7%. Now four
years later the similar Bond sells at YTM of 5%. If you hold the
bond now, what is your realized rate of return for the 4-year
holding.

Bond A is a $1,000, 6% quarterly coupon bond with 5 years to
maturity.
(a) If you bought Bond A today at a yield (APR) of 8%, what is
your purchase price? Is this a premium or discount bond? Why?
(b) One year later, Bond A's YTM (APR) has gone down to 6% and
you sell it immediately after receiving the coupon.
(i) What is the current yield?
(ii) What is the capital gains yield?
(iii) What is the one-year...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 10 minutes ago

asked 11 minutes ago

asked 26 minutes ago

asked 28 minutes ago

asked 34 minutes ago

asked 34 minutes ago

asked 41 minutes ago

asked 42 minutes ago

asked 48 minutes ago

asked 58 minutes ago

asked 59 minutes ago

asked 1 hour ago