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?
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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
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