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Providence Health bonds are selling in the market for $1,045. These 15 year bonds pay 7...

Providence Health bonds are selling in the market for $1,045. These 15 year bonds pay 7 percent annually on a $1,000 par value. If the bond is purchased at market price, what is the expected rate of return? Note: format is x.xx%

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Answer #1

Information provided:

Par value= future value= $1,000

Current price= present value= $1,045

Time= 15 years

Coupon rate= 7%

Coupon payment= 0.07*1,000= $70

The expected rate of return is computed by calculating the yield to maturity.

Enter the below in a financial calculator to compute the yield to maturity:

FV= 1,000

PV= -1,045

N= 15

PMT= 70

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 6.5208.

Therefore, the expected rate of return is 6.52%.

In case of any query, kindly comment on the solution.

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