5. Suppose this year you buy 1.5% coupon rate,$10,000 face value bond for $10,100 that has 3years left till maturity. Suppose next year marketinterest rates increase to 2.0% and you decide tosell it your bond that year.a) Calculate the selling price of your bond nextyear. In another words, what price would makeyour bond competitive when market yields are at2.0%?b) Given the selling price from part (a), what wasyour annual rate of return from owning this bond?You can assume you kept a single couponpayment during the year you owned the bond.

The annual rate of return is the percentage change in the value of an investment. For example: If…

Answered: 2.0%? b) Given the selling price from…

2.0%? b) Given the selling price from part (a), what was your annual rate of return from owning this bond? You can assume you kept a single coupon payment during the year you owned the bond.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

5. Suppose this year you buy 1.5% coupon rate,
$10,000 face value bond for $10,100 that has 3
years left till maturity. Suppose next year market
interest rates increase to 2.0% and you decide to
sell it your bond that year.
a) Calculate the selling price of your bond next
year. In another words, what price would make
your bond competitive when market yields are at
2.0%?
b) Given the selling price from part (a), what was
your annual rate of return from owning this bond?
You can assume you kept a single coupon
payment during the year you owned the bond.

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