Question

**Question 7**

You bought a 10-year, 5% coupon bond for $1,000 and sold it 1 year later for $1,050.

What is the rate of return on your investment if the bond pays interest annually?

If your marginal tax rate is 35%, and 50% of capital gains are taxable, what is the after-tax rate of return on your bond investment?

Answer #1

ROI = [Int Income + Capital gain] / Investment

Int Income = face Value * Coupon rate

= $ 1000 * 5% = $ 50

capital gain = Sale value - Purchase value

a.

ROI = [Int Income + Capital gain] / Investment

$ 1050 - $ 1000 = $ 50

= [($1000*5%)+ ($1050 - $1000)]/ $ 1000

= [ $50 + $ 50 ] / $ 1000

= $ 100 / $ 1000

= 0.10 i.e 10%

ROI after tax = [Int Income after tax + Capital gain after tax] / Investment

Int Income after Tax = Int Income * (1 - Tax rate )

= $ 50 * (1 - 0.35)

= $ 50 *0.65

= $ 32.5

capital gain after tax = capital Gain (1 - Capital Gain tax rate)

= $ 50*(1-0.50)

=$50*0.50

= $ 25

ROI after tax = [Int Income after tax + Capital gain after tax] / Investment

= [$ 32.5 + $ 25 ] / $ 1000

= $ 57.5 / $ 1000

= 0.0575 i.e 5.75%

**After tax rate of return is 5.75%**

**Pls comment, if further assitance is
required**

You bought a 10-year, 5% coupon bond for $1000, and sold it 1
year later for $1,100. What is the rate of return on your
investment if the bond pays interest annually? Semi-annually?

Suppose that you just bought a four-year $1,000 coupon bond
with a coupon rate of 6.4% when the market interest rate is 6.4%.
One year later, the market interest rate falls to
4.4%. The rate of return earned on the bond during the year was
x %.
(Round your response to two decimal places.)

Suppose that you just bought a four-year $1,000 coupon bond with a
coupon rate of 5.4% when the market interest rate is 5.4%. One year
later, the market interest rate falls to 3.4%.
The rate of return earned on the bond during the year was
_%

Suppose that you just bought a four-year $1,000 coupon bond with
a coupon rate of 5.4% when the market interest rate is 5.4%. One
year later, the market interest rate falls to 3.4%.
The rate of return earned on the bond during the year was _%

You just bought a newly issued bond which has a face value of
$1,000 and pays its coupon once annually. Its coupon rate is 5%,
maturity is 20 years and the yield to maturity for the bond is
currently 8%.
Do you expect the bond price to change in the future when the
yield stays at 8%? Why or why not? Explain. (No calculation is
necessary.)
2 marks)
Calculate what the bond price would be in one year if its...

Bond A is a $1,000, 6% quarterly coupon bond with 5 years to
maturity.
(a) If you bought Bond A today at a yield (APR) of 8%, what is
your purchase price? Is this a premium or discount bond? Why?
(b) One year later, Bond A's YTM (APR) has gone down to 6% and
you sell it immediately after receiving the coupon.
(i) What is the current yield?
(ii) What is the capital gains yield?
(iii) What is the one-year...

Bond A is a $1,000, 6% quarterly coupon bond with 5 years to
maturity.
(a) If you bought Bond A today at a yield (APR) of 8%, what is
your purchase price? Is this a premium or discount bond? Why?
(b) One year later, Bond A's YTM (APR) has gone down to 6% and
you sell it immediately after receiving the coupon.
(i) What is the current yield?
(ii) What is the capital gains yield?
(iii) What is the one-year...

Question 18
What is the price of a 30-year, 7% coupon rate, $1,000 face
value bond that pays interest semi-annually, if the yield to
maturity on similar bonds is 7.5%?
a. $886.9
b. $940.7
c. $1,065.6
d. $1,138.4
e. $1,219.2

A $1,000 par-value bond with 5 years of maturity pays a 5%
coupon rate, paid annually. What is the value of the bond if your
required rate of return is 5%?
2. A $1,000 par-value bond with 5 years of
maturity pays a 5% coupon rate, paid semi-annually. What is the
value of the bond if your required rate of return is 5%?
3. A $1,000 par-value bond with 5
years of maturity pays a 5% coupon rate, paid semi-annually. What...

you
bought a 15 year bond for $1200 and then sold the bond for 1385
five years later it was a 10% coupon bond with a par value of 1000
what is your HPR or rate of return over the five year period on
this coupon paying bonds

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