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%