Question

purchased bonds five years ago when they were issued at par. These bonds originally had 30 years until maturity, a semi annual coupon payment, a coupon rate of 7% and a par value of $1,000. You want to sell the bonds today, the market rate is now 6%, what is your realized return on these bonds?

Answer 1

Selling price

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =25x2

Bond Price =∑ [(7*1000/200)/(1 + 6/200)^k]     +   1000/(1 + 6/200)^25x2

k=1

Bond Price = 1128.65

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

=((1128.65+70*5)/1000-1)*100=47.865%