Question

You purchased a $1,000 par value 20-year 4% coupon bond with semi-annual payments for $1,000. Immediately...

You purchased a $1,000 par value 20-year 4% coupon bond with semi-annual payments for $1,000. Immediately after the purchase, interest rates increased and the yield to maturity and coupon reinvestment rate increased to 6%. (the coupons themselves stayed at 4%) Interest rates and the yield to maturity remain at 6% and you sell the bond 5 years later, having reinvested the coupons at 6%. How much is in your account (proceeds from bond sale and value of all coupons after reinvesting them) after you sell the bond? Hint: one of the steps is to calculate the selling price of the bond.

Homework Answers

Answer #1

Sale proceeds after 5 years= $914.70

Accumulated value of interest at 6% per year= $229.29

Money available (sale price + interest accumulated)= $1,143.98

Calculations as below:

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 you purchase a 8-year, 6% semi-annual coupon bond for 89.153. Immediately after you purchase the...
Suppose you purchase a 8-year, 6% semi-annual coupon bond for 89.153. Immediately after you purchase the bond, the yield for equivalently risk bonds decreases by 100 basis points. However, instead of holding the bond until maturity, you plan to hold the bond for 3 years and then sell it. All coupons will be reinvested at the prevailing yield on equivalently risky bonds. What will be your return on this investment in this scenario? Round your answer to three decimal places.
You are considering a coupon bond (par=$1,000) that pays semi-annual interest with a coupon rate of...
You are considering a coupon bond (par=$1,000) that pays semi-annual interest with a coupon rate of 6%. The bond currently has a bid price of 116.89 and an ask price of 117.00. If the last interest payment was made 60 days ago, and there are 180 days between the last interest payment and the next interest payment, what is the invoice price of the bond? A. $1,180.0 B. $1,170.0 C. $1,190.6 D. $1,168.9 You purchase a 10-year T-note which has...
One year ago, an investor purchased a 10-year, $1,000 par value, 8% semiannual coupon bond with...
One year ago, an investor purchased a 10-year, $1,000 par value, 8% semiannual coupon bond with an 8% yield to maturity. Now, one year later, interest rates remain unchanged at 8%. If the investor sells the bond today (immediately after receiving the second coupon payment, and with no transaction costs), he will have: A. a capital gain of $80. B. a capital loss of $80. C. no capital gain or loss.
Consider a coupon bond with semi-annual coupon rate 6%, M = 100, and n = 20....
Consider a coupon bond with semi-annual coupon rate 6%, M = 100, and n = 20. Assume the semi-annual yield to maturity y = 6%. Let ? ′ denote the reinvestment rate of the coupon payments. Let ? ′ denote the interest rate at the time of sale. Also, assume your holding period to equal the Macaulay duration of the bond rounded to the closest integer. Calculate the total future dollars at the end of the holding period under the...
14. An investor purchases a just issued 30-year, 10.500% semi-annual coupon bond at 104.079 percent of...
14. An investor purchases a just issued 30-year, 10.500% semi-annual coupon bond at 104.079 percent of par value and sells it after 10 years. The bond’s yield to maturity is 9.584% at time of sale, and rises to 10.100% immediately after the purchase but before the first coupon is received. All coupons are reinvested to maturity at the new yield to maturity. Show the sources of return below. (a) Total coupon payments:   (b) Reinvestment income from coupons: (c) Sale price...
A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years,...
A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has a coupon rate of 8%, and has a yield to maturity of 7%. 1) Calculate the price of the bond and the Current Yield. 2)   The Macaulay Duration for this bond is 8.29 years, then what is the Modified Duration? 3) Suppose you sell the bond at $1000 two years later. The reinvestment return during these two years is 6%. What is the...
For the? following, assume the normal case that bond coupons are? semi-annual: ? a) What is...
For the? following, assume the normal case that bond coupons are? semi-annual: ? a) What is the yield to maturity? (YTM) on a 9?-year, 6.8?% coupon bond if the bond is currently selling for? $1,000? ? (Assume semi-annual? coupons) % ?b) What is the YTM on the above bond if the value today is ?$961.08?? % ?c) For the bond in ?a) above?, what is your realized? (actual) EAR if immediately after you purchase the bond market? rates, and the...
28.You purchase a Chrysler bond with a par value of $1,000 that carries a semi-annual coupon...
28.You purchase a Chrysler bond with a par value of $1,000 that carries a semi-annual coupon rate of 4%, has a 5-year maturity and sells at par. (7 points) a.What will be the bond’s price one year later if the YTM has decreased by 1%? b.If you sell the bond at the price (a) above, what was is your HPR (Holding Period Return)? Round your answer to two (2) decimal places. 29.The Nickelodeon Manufacturing Corp. has a series of $1,000...
a)You purchase a 3-year US government bond with a face value of €1,000 and semi-annual coupon...
a)You purchase a 3-year US government bond with a face value of €1,000 and semi-annual coupon payments amounting to €25. The bond will still make six coupon payments plus pay back the principal. If the semi-annual yield to maturity is currently 5%, the present value of this bond would be? b) Computer stocks currently provide an expected rate of return of 16%. MBI, a large computer company, will pay a year-end dividend of €2 per share. If the stock is...
Jose purchased a euro bond, which has a par value of $1,000, a 3% annual coupon...
Jose purchased a euro bond, which has a par value of $1,000, a 3% annual coupon rate, and an annual yield to maturity of 2.80% with five years until maturity. The euro bond pays semiannual coupons. After two years Jose received four semi-annual coupons and he sold the bond at a price of $1010. If he was able to invest the coupons at a semi-annual return of 2.50%, what is his total realized return over the two years?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT