Question

a three-year 9% coupon bond that pays interest semiannually is trading at par of $5000. you...

a three-year 9% coupon bond that pays interest semiannually is trading at par of $5000. you buy the bond expecting to hold it to maturity abd believe you can reinvest the semi-annual coupon payment at 3.5% semi-annual rate through maturity. what is the total return on this investment annually?
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #2

Number of period (Nper) = 3 * 2 = 6
Semi-annual payment = $5,000 * 9% / 2 = $225
Rate = 3.5%


Future value of the coupon investment is calculated by using the following excel formula:
=FV(rate,nper,pmt,pv)
=FV(3.5%,6,-225,5000)
= $1,473.78

Amount received at the time of maturity = $5,000 + $1,473.78 = $6,473.78

Annual rate of return can be calculated by using the following excel formula:
=RATE(nper,pmt,pv,fv)*2
=RATE(6,0,-5000,6473.78)*2
= 8.80%


Annual rate of return = 8.80%

FEEL FREE TO ASK DOUBTS.. PLEASE RATE MY ANSWER..

answered by: anonymous
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
An investor who owns a bond with a 9% coupon rate that pays interest semiannually and...
An investor who owns a bond with a 9% coupon rate that pays interest semiannually and matures in three years is considering its sale. If the required rate of return on the bond is 11%, calculate the price of the bond per 100 of par value is closest to The following information relates to Questions 15 and 16 Bond Coupon Rate Maturity (years) A 6% 10 B 6% 5 C 8% 5 All three bonds are currently trading at par...
Suppose that you invest in a two-year Treasury bond with a coupon rate of 7% and...
Suppose that you invest in a two-year Treasury bond with a coupon rate of 7% and $1,000 par. Suppose that you buy this bond at a price of exactly $1,000. You intend to hold this bond to maturity and reinvest the coupons until the bond matures. You expect to reinvest the coupons in an account that pays an APR of 1.26%, with semi-annual compounding. What is the effective annual rate of return on your investment? Hint: see Example 8 in...
suppose you invest in two year treasury bill with a coupon of 5% and $1000 par....
suppose you invest in two year treasury bill with a coupon of 5% and $1000 par. Suppose that you buy this bond at a price of exactly $1000. you intend to hold the bond to maturity and reinvest the coupons until the bond matures . you expect to reinvest the coupons in an account that pays an APR of 2.25% with semi annual compounding . calculate EAY effective interest rate
q1 - A coupon bond that pays interest semiannually has a par value of $1,000, matures...
q1 - A coupon bond that pays interest semiannually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 6.5%. If the coupon rate is 3.5%, the intrinsic value of the bond today will be Q-2 you purchased s coupon bond at a price of 1059. the coupon rate for the bond is 5% with a face value of 1000. you sold the bond at 1066.13 one year later. how much us one...
Consider a $1,000 par value bond with a 9% annual coupon. The bond pays interest annually....
Consider a $1,000 par value bond with a 9% annual coupon. The bond pays interest annually. There are 20 years remaining until maturity. You have expectations that in 5 years the YTM on a 15-year bond with similar risk will be 7.5%. You plan to purchase the bond now and hold it for 5 years. Your required return on this bond is 10%. How much would you be willing to pay for this bond today? Select one: a. $1044 b....
Consider a $1,000 par value bond with a 9% annual coupon. The bond pays interest annually....
Consider a $1,000 par value bond with a 9% annual coupon. The bond pays interest annually. There are 20 years remaining until maturity. You have expectations that in 5 years the YTM on a 15-year bond with similar risk will be 7.5%. You plan to purchase the bond now and hold it for 5 years. Your required return on this bond is 10%. How much would you be willing to pay for this bond today? Select one: a. $1132 b....
A bond has a $1,000 par value, 10 years to maturity, and pays a coupon of...
A bond has a $1,000 par value, 10 years to maturity, and pays a coupon of 7.0% per year, semiannually. You expect the bond’s yield to maturity to decrease to 6.5% per year in two years. If you buy the bond today for $987.75 and sell it in two years, what is the annual return on your investment? Question 9 options: A) 9.42% B) 9.12% C) 8.96% D) 8.74% E) 9.04%
You are considering a coupon bond (par=$1,000) that pays semi-annual interest with a coupon rate of...
You are considering a coupon bond (par=$1,000) that pays semi-annual interest with a coupon rate of 6%. The bond currently has a bid price of 116.89 and an ask price of 117.00. If the last interest payment was made 60 days ago, and there are 180 days between the last interest payment and the next interest payment, what is the invoice price of the bond? A. $1,180.0 B. $1,170.0 C. $1,190.6 D. $1,168.9 You purchase a 10-year T-note which has...
A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid annually....
A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid annually. What is the value of the bond if your required rate of return is 5%? 2. A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid semi-annually. What is the value of the bond if your required rate of return is 5%? 3.  A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid semi-annually. What...
A bond pays 9% coupon rate semiannually and matures in three years is up for sale....
A bond pays 9% coupon rate semiannually and matures in three years is up for sale. If the required rate of return on the bond is 11%, the price of the bond per 100 of par value is closest to: A. 72.00 B. 95.00 C. 98.11 D. None of the above.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT