Question

You buy a ten-year bond that has a 6.75% current yield and a 5.00% coupon (paid...

You buy a ten-year bond that has a 6.75% current yield and a 5.00% coupon (paid annually). In one year, promised yields to maturity have fallen to 5.75%. What is your holding-period return?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Assuming face value to be $1000

Annual coupon = 5% of 1000 = 50

Current yield = Annual coupon / Price

Price = 50 / 0.0675

Price = 740.74074

Price in 1 year = Coupon * [1 - 1 / (1 + r)^n] / r + FV / (1 + r)^n

Price in 1 year = 50 * [1 - 1 / (1 + 0.0575)^9] / 0.0575 + 1000 / (1 + 0.0575)^9

Price in 1 year = 50 * [1 - 0.604612] / 0.0575 + 604.611795

Price in 1 year = 50 * 6.876317 + 604.611795

Price in 1 year = $948.427625

Holding period return = [(Ending value + coupon - beginning value) / beginning value] * 100

Holding period return = [(948.427625 + 50 - 740.74074) / 740.74047] * 100

Holding period return = 34.79%

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You buy a ten-year bond that has a 6.75% current yield and a 5.00% coupon (paid...
You buy a ten-year bond that has a 6.75% current yield and a 5.00% coupon (paid annually). In one year, promised yields to maturity have fallen to 5.75%. What is your holding-period return? 15.85% 13.53% 8.31% 14.02%
You buy an 7-year $1,000 par value bond today that has a 5.50% yield and a...
You buy an 7-year $1,000 par value bond today that has a 5.50% yield and a 5.50% annual payment coupon. In 1 year promised yields have risen to 6.50%. Your 1-year holding-period return was ___.
You buy an 9-year $1000 par value bond today that has a 6.70% yield and a...
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%
You buy an 7-year $1,000 par value bond today that has a 5.60% yield and a...
You buy an 7-year $1,000 par value bond today that has a 5.60% yield and a 5.60% annual payment coupon. In 1 year promised yields have risen to 6.60%. Your 1-year holding-period return was ___. Multiple Choice 0.77% –4.83% 1.54% –2.69%
Suppose you purchase a 15-year maturity bond that has a 7% current yield and a 7%...
Suppose you purchase a 15-year maturity bond that has a 7% current yield and a 7% coupon (paid semiannually) rate. In one year, the yield to maturity has risen to 9%. What is your holding-period return?
Suppose you purchase a 15-year maturity bond that has a 7% current yield and a 7%...
Suppose you purchase a 15-year maturity bond that has a 7% current yield and a 7% coupon (paid semiannually) rate. In one year, the yield to maturity has risen to 9%. What is your holding-period return?
Suppose you purchase a 15-year maturity bond that has a 7% current yield and a 7%...
Suppose you purchase a 15-year maturity bond that has a 7% current yield and a 7% coupon (paid semiannually) rate. In one year, the yield to maturity has risen to 9%. What is your holding-period return? PLEASE SHOW ALL WORK (with formulas)
You buy an 8 percent coupon, 10-year maturity bond when its yield to maturity is 9...
You buy an 8 percent coupon, 10-year maturity bond when its yield to maturity is 9 percent. One year later, the yield to maturity is 10 percent. Assume the face value of the bond is $1,000. (a) What is the price of the bond today? (b) What is the price of the bond one year later? (c) What is your rate of return over the one-year holding period?
The 7.9%, ten-year bond yields 5.9%. If this yield to maturity remains unchanged, what will be...
The 7.9%, ten-year bond yields 5.9%. If this yield to maturity remains unchanged, what will be its price one year hence? Assume annual coupon payments and a face value of $1,000. What is the total return to an investor who held the bond over this year? A government bond matures in 4 years, makes annual coupon payments of 5.9% and offers a yield of 3.9% annually compounded. Assume face value is $1,000. a) Suppose that one year later the bond...
Suppose that at t=0, you purchase a six year, 8% coupon bond paid annually that is...
Suppose that at t=0, you purchase a six year, 8% coupon bond paid annually that is priced to yield 9%. The face value of the bond is $1000. a) What will be your holding period return if you decide to hold the bond til its maturity and the market interest rate remains constant at 9% throughout your holding period of 6 years? b) What will be your holding period return if you decide to hold the bond til its maturity,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT