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.)
Suppose that you just bought a four-year $1,000 coupon bond with a coupon rate of 5.4%...
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%...
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...
Suppose that you just bought a​ four-year ​$1 000 coupon bond with a coupon rate of 6.9​% when the market interest rate is 6.9​%. One year​ later, the market interest rate falls to 4.9​%. The rate of return earned on the bond during the year was the ans is 12.36%, can yo please show me the formla how it is arrived at
Suppose that you bought a four year coupon bond with $10,000 face value, 6% coupon rate...
Suppose that you bought a four year coupon bond with $10,000 face value, 6% coupon rate and 7% yield to maturity. After holding it for a year and collecting the first coupon payment you decide to sell it. Calculate the return (in %) on this investment if the interest rate has just dropped to 5%. With Formula's Please
Bond Valuation C) Suppose that Joan just bought a 15-year bond for $902.71. The bond has...
Bond Valuation C) Suppose that Joan just bought a 15-year bond for $902.71. The bond has a coupon rate equal to 7 percent, and interest is paid semiannually. What is the bond’s yield to maturity (YTM)? If Joan holds the bond for the next three years and its YTM does not change during that period, what return will she earn each year? What portion of the annual return represents capital gains and what portion represents the current yield? D) Suppose...
Question 7 You bought a 10-year, 5% coupon bond for $1,000 and sold it 1 year...
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?
Consider a bond (with par value = $1,000) paying a coupon rate of 7% per year...
Consider a bond (with par value = $1,000) paying a coupon rate of 7% per year semiannually when the market interest rate is only 6% per half-year. The bond has 3 years until maturity.    a. Find the bond's price today and 6 months from now after the next coupon is paid. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)      Current price ____________ $      Price after six months __________ $       b. What...
Suppose you bought a bond with a coupon rate of 7.2 percent paid annually one year...
Suppose you bought a bond with a coupon rate of 7.2 percent paid annually one year ago for $945. The bond sells for $990 today. a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Total dollar return $ b. What was your total nominal rate of return on this investment over the past year?...
Suppose you bought a bond with a coupon rate of 4.2 percent paid annually one year...
Suppose you bought a bond with a coupon rate of 4.2 percent paid annually one year ago for $900. The bond sells for $950 today. a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)   Total dollar return $    b. What was your total nominal rate of return on this investment over the past year?...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT