Question

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.

 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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