Question

Three years ago you purchased a 12​% coupon bond that pays semiannual coupon payments for ​$971. What would be your bond equivalent yield if you sold the bond for current market price of ​$1043​? Your bond equivalent​ yield, if you sold the bond for current market​ price, is nothing​%. ​(Round to two decimal​ places.)

Answer 1

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Answer:

Purchase Price = $971
Selling Price = $1,043

Par Value = $1,000

Annual Coupon Rate = 12%
Semi-annual Coupon Rate = 6%
Semi-annual Coupon = $1,000 * 6% = $60

Holding Period = 3 years
Semi-Annual Period = 6

Let Semi-annual Return be i%

$981 = $45 * PVIFA(i%, 6) + $1,060 * PVIF(i%, 6)

Using financial calculator:
N = 6
PV = -971
PMT = 60
FV = 1043

I = 7.21

Semi-annual Return = 7.21%
Annual Return = 2 * 7.21%
Annual Return = 14.42%