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BOND RETURNS Last year Janet purchased a $1,000 face value corporate bond with an 7% annual...

BOND RETURNS

Last year Janet purchased a $1,000 face value corporate bond with an 7% annual coupon rate and a 20-year maturity. At the time of the purchase, it had an expected yield to maturity of 9.73%. If Janet sold the bond today for $990.49, what rate of return would she have earned for the past year? Do not round intermediate calculations. Round your answer to two decimal places.

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Answer #1
Computation Purchase Price of the   Bond
a Annual Coupon Amount $         70.00
b Present Value Annuity Factor for (20 Years,9.73%) 8.672845
c Present Value Of Annual Interest (a*b) $       607.10
d Redemption Value $   1,000.00
e Present Value Of (20 Years,9.73%) 0.15613
g Present Value Of Redemption Amount (d*e) $       156.13
f Bond price(c+g) $       763.23
Rate of return earned = (sale price - purchase price ) + coupon amount / purchase price
= [(990.49-763.23)+70]/763.23
=38.95%
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