Question

Suppose that you just bought a​ four-year ​$1,000 coupon bond with a coupon rate of 6.4​%...

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.)

Homework Answers

Answer #1

Now, when the bond was issued, coupon rate = YTM. So issuance price = par value = $1000.

After 1 year, YTM falls to 4.4%. We need to calculate price of bond then.

where P is price of bond with periodic coupon C, M face value, periodic YTM i and n periods to maturity.

M = $1000, C = $64, n = 3, i = 4.4%

P = $176.27 + $878.82 = $1,055.08

Rate of Return = (Final Price - Initial Price + Coupon)/Initial Price

Rate of Return = (1055.08 - 1000 + 64)/1000 = 119.08/1000 = 1.19%

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose that you just bought a​ four-year ​$1000 coupon bond with a coupon rate of 5.7​%...
Suppose that you just bought a​ four-year ​$1000 coupon bond with a coupon rate of 5.7​% when the market interest rate is 5.7​%. One year​ later, the market interest rate falls to 3.7​%. The rate of return earned on the bond during the year was nothing​( )%. ​(Round your response to two decimal​ places.)
A. You buy a 10-year US Treasury Bond with a coupon interest rate of 5% and...
A. You buy a 10-year US Treasury Bond with a coupon interest rate of 5% and Face Value of $1,000. You decide to sell your bond four years later when market interest rates have fallen to 4%. Find the selling price of the bond. B. Calculate the Annualized Holding Period Return on the investment. Show your work.
If a three-year bond with a $1,000 face value has a coupon rate of 3.5%, and...
If a three-year bond with a $1,000 face value has a coupon rate of 3.5%, and if the current market interest rate is 2%, what is the market price of the bond? (Do not include the dollar sign in your answer, and round to two decimal places.)
Suppose you bought a 15-year $1,000 face-value bond for $945 one year ago. The annual coupon...
Suppose you bought a 15-year $1,000 face-value bond for $945 one year ago. The annual coupon rate is 7% and interest payments are paid annually. If the price today is $995, the yield to maturity must have changed from _____________ to ______________. 8.12%; 6.94% 7.12%; 8.11% 7.63%; 7.06% 9.11%; 9.35% None of the above
Curtis bought an 8.5% annual coupon bond at par. One year later, he sold the bond...
Curtis bought an 8.5% annual coupon bond at par. One year later, he sold the bond at a quoted price of 98. During the year, market interest rates rose and inflation was 2.5%. What real rate of return did Curtis earn on this investment? a. 6.70% b. 6.50% c. 6.40% d. 3.90% e. 3.40% ANS: D Show steps please!
Suppose you bought a 8 percent coupon bond one year ago for $1,050. The bond sells...
Suppose you bought a 8 percent coupon bond one year ago for $1,050. The bond sells for $1,115 today. Requirement 1: Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? Requirement 2: What was your total rate of return on this investment over the past year (in percent)? Requirement 3: If the inflation rate last year was 5 percent, what was your total "real" rate of return on this investment? Assume...
Suppose you buy a bond with a coupon of 7.1 percent today for $1,000. The bond...
Suppose you buy a bond with a coupon of 7.1 percent today for $1,000. The bond has 16 years to maturity. Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. What is the percentage realized rate of return? Assume that interest payments are reinvested at the original YTM. The bond pays coupons twice a year. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Last year, Joan purchased a $1,000 face value corporate bond with an 9% annual coupon rate...
Last year, Joan purchased a $1,000 face value corporate bond with an 9% annual coupon rate and a 25-year maturity. At the time of the purchase, it had an expected yield to maturity of 9.19%. If Joan sold the bond today for $933.51, what rate of return would she have earned for the past year? Round your answer to two decimal places.
Last year, Joan purchased a $1,000 face value corporate bond with an 8% annual coupon rate...
Last year, Joan purchased a $1,000 face value corporate bond with an 8% annual coupon rate and a 25-year maturity. At the time of the purchase, it had an expected yield to maturity of 9.08%. If Joan sold the bond today for $1,106.92, what rate of return would she have earned for the past year? Round your answer to two decimal places.
Last year Janet purchased a $1,000 face value corporate bond with an 7% annual coupon rate...
Last year Janet purchased a $1,000 face value corporate bond with an 7% annual coupon rate and a 15-year maturity. At the time of the purchase, it had an expected yield to maturity of 7.42%. if janet sold the bond today for $991.19, what rate of return would she have earned for the past year? round your answer to two decimal places.