A 5-year bond with a face value of $1,000 and a coupon rate of 4% has just been issued at a discounted price of $915.80. Assuming the price of the bond at the end of the year has risen to $932, calculate the rate of return in year 1 and explain why it differs from the current yield.
A 5-year bond with a face value of $1,000 and a coupon rate of 4% has just been issued at a discounted price of $915.80. Assuming the price of the bond at the end of the year has risen to $932, calculate the rate of return in year 1 and explain why it differs from the current yield.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A 5-year bond with a face value of $1,000 and a coupon rate of 4% has just been issued at a discounted price of $915.80.
Assuming the price of the bond at the end of the year has risen to $932, calculate the rate of return in year 1 and explain why it differs from the current yield.
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