Question

Last year Janet purchased a $1,000 face value corporate bond with an 10% annual coupon rate and a 10-year maturity. At the time of the purchase, it had an expected yield to maturity of 12.45%. If Janet sold the bond today for $982.47, 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

  

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Purchase Price

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 12.45%

And n is the no of Compounding periods 10 years

Coupon 10%

=

= 864.08

Todays Price = 982.40

% REturn = Coupon + Capital Gain / Purcashe Price

= 100 + (982.40 - 864.08) / 864.08

= 25.27%

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