Question

You buy an 9-year $1000 par value bond today that has a 6.70% yield and a 6.70% annual payment coupon. In 1 year promised yields have risen to 7.70%. Your 1-year holding-period return was ________. –5.81% –3.67% 0.89% 1.78%

Answer #1

Purchase price

= par value as coupon rate = YTM

selling price

K = N |

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N |

k=1 |

K =8 |

Bond Price =∑ [(6.7*1000/100)/(1 + 7.7/100)^k] + 1000/(1 + 7.7/100)^8 |

k=1 |

Bond Price = 941.87 |

rate of return = ((selling price+coupon)/purchase price-1)*100 |

=((941.87+67)/1000-1)*100=0.887%

You buy an 7-year
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You buy an 7-year $1,000 par value bond today that has a 5.60%
yield and a 5.60% annual payment coupon. In 1 year promised yields
have risen to 6.60%. Your 1-year holding-period return was ___.
Multiple Choice
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