A 6.25 percent coupon bond with 22 years left to maturity is priced to offer a 5.5 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.0 percent. What would be the total return of the bond in dollars? What would be the total return of the bond in percent?

A 6.25 percent coupon bond with 22 years left to maturity is priced to offer a 5.5 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.0 percent. What would be the total return of the bond in dollars? What would be the total return of the bond in percent?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...

See similar textbooks

Related questions

Q: Consider a bond with a coupon rate of 14% and coupons paid semiannually. The par value is S1000 and…

A: A coupon bond's present value is sum of its future coupon payments plus par value discounted at…

Q: A 6.10 percent coupon bond with 10 years left to maturity is priced to offer a 7.2 percent yield to…

A: Bonds are fixed-income securities issued by governments, municipalities, or corporations to raise…

Q: Consider a 10-year bond with current price of $98.4 and a duration of 9.1 years. Suppose the yield…

A: We can use the modified duration formula to get the expected change in the bond price when the yield…

Q: 2. Consider a bond with a 7.5% annual coupon rate and a face value of $1,000. Calculate the bond…

A: Computation of Price and Duration of bond : When years to maturity is 4 years and interest rate is…

Q: A 6.10 percent coupon bond with 10 years left to maturity is priced to offer a yield to maturity of…

A: To solve the problem, we need to calculate the change in bond price based on the change in yield to…

Q: If you consider a 5 year, 6% coupon bond, making annual coupon payments. If the bond has a yield to…

A: Bond Price The price of the bond represents the value of the bond at present. It is the price that…

Q: A risk-free, zero-coupon bond with a face value of $10,000 has 14 years to maturity. If the YTM is…

A: Face value or maturity value (Z) = $10,000 Maturity period (n) = 14 Years YTM = 0.071 Price of the…

Q: Suppose you bought a five-year zero-coupon Treasury bond for $800 per $1000 face value. Suppose…

A: Holding Period Return is the total return on an investment generated including the dividend or…

Q: What is the price of a bond with a coupon rate of 5.20% and semi-annual payments, if the…

A: Time value of money :— According to this concept, value of money in present day is greater than the…

Q: You buy a 10-year maturity bond for the face value of $1,000 when the current interest rate is 9%. A…

A: Yield to maturity is the rate of return realized on the bond when bond is held till maturity of the…

Q: Suppose you bought a five-year zero-coupon Treasury bond for $800 per $1000 face value. What is the…

A: Zero coupon Bond is the bond issued at discount and no interest is paid during the life of the…

Q: What is the fair price for a bond with a 5.5% annual coupon and 8 years until maturity if the yield…

A: The objective of the question is to calculate the fair price of a bond given its annual coupon rate,…

Q: The YTM on a bond is the interest rate you earn on your investment if interest rates don't change.…

A: A bond is a kind of debt security issued by the government and private companies to the public for…

Q: uppose a bond has a coupon rate of 9.5%, a remaining maturity of 15 years, and a face value of…

A: Present value refers to the current valuation for a future sum. Investors determine the present…

Q: You own a bond with an annual coupon rate of 5% maturing in two years and priced at 85%. Suppose…

A: (a): Promised yield to maturity is that rate at which bond's price = 85% of 1000 = 850.

Q: What is the yield to maturity on a bond that has a price of $1,700 and a coupon rate of 12% annually…

A: Information provided: Price = $1700 Future Value = $1000 Coupon rate = 12% Coupon payment = 120…

Q: Suppose you bought a 10 year coupon bond with par value $500 and coupon rate 6%. What is the market…

A: Future value of the bond A financial notion called future value (FV) determines the value of an…

Q: A coupon bond of 8.4 percent with 18 years left to maturity is priced to offer a 6.70 percent yield…

A: Bond valuation refers to a method that is used to compute the current value or present value (PV) of…

Q: bond

A: Introduction: Yield to maturity can be defined as a return which is expected to be earned on a bond…

Q: The YTM on a bond is the interest rate you earn on your investment if interest rates don't change.…

A: YTM of bond is the rate of return realised on bond when bond is held till maturity of bond period…

Q: Consider a 25-year coupon bond which has a face value of $500 and a 5% coupon rate. Its current…

A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…

Question

A 6.25 percent coupon bond with 22 years left to maturity is priced to offer a 5.5 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.0 percent.

What would be the total return of the bond in dollars?

What would be the total return of the bond in percent?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?
What would be the value of the bond described in Part d if, just after it had been issued, the expected inflation rate rose by 3 percentage points, causing investors to require a 13% return? Would we now have a discount or a premium bond? What would happen to the bond’s value if inflation fell and rd declined to 7%? Would we now have a premium or a discount bond? What would happen to the value of the 10-year bond over time if the required rate of return remained at 13%? If it remained at 7%? (Hint: With a financial calculator, enter PMT, I/YR, FV, and N, and then change N to see what happens to the PV as the bond approaches maturity.)
A 6.75 percent coupon bond with 20 years left to maturity is priced to offer a 6.0 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.6 percent. (Assume interest payments are semiannual.) What would be the total return of the bond in dollars? What would be the total return of the bond in percent?
A coupon bond of 8.6 percent with 17 years left to maturity is priced to offer a 6.80 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.5 percent. (Assume interest payments are semiannual.) What would be the total return of the bond in dollars? What would be the total return of the bond in percentage?
A 6.5 percent coupon bond with 14 years left to maturity is priced to offer a 7.2 percent yield to maturity. You believe that in one year, the yield to maturity will be at 6.8 percent. What is the change in price the bond will experience in dollars?
A 6.10 percent coupon bond with 10 years left to maturity is priced to offer a 7.2 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. Assuming semiannual interest payments, what is the change in price the bond will experience in dollars?
Consider a bond with a 10% coupon and yield to maturity = 8%. If the bond’s yield to maturity remains constant, then in one year, will the bond price be higher, lower, or unchanged? Why?
A newly issued bond with 1 year to maturity has a price of $1,000, which equals its face value. The coupon rate is 15% and the probability of default in 1 year is 35%. The bond’s payoff in default will be 65% of its face value. a. Calculate the bond’s expected return. b. Use a data table to show the expected return as a function of the recovery percentage and the price of the bond. Please show how you got part B using all functions.
Consider a bond with a face value of $2,000 that pays a coupon of $150 for 10 years. Suppose the bond is purchased at $500, and can be resold next year for $400. What is the rate of return of the bond? What is the yield to maturity of the bond?
A 7.5 percent coupon bond with 13 years left to maturity is priced to offer a 6.25 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. What would be the total return of the bond in dollars? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Total return What would be the total return of the bond in percentage? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Total return %
You own a bond with an annual coupon rate of 5% maturing in two years and priced at 85%. Suppose that there is a 23% chance that at maturity the bond will default and you will receive only 45% of the promised payment. Assume a face value of $1,000. A. What is the bond’s promised yield to maturity?B.What is its expected yield (i.e., the possible yields weighted by their probabilities)?
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $89.75, while a 2-year zero sells at $79.88. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 10% per year. Required: What is the yield to maturity of the 2-year zero? What is the yield to maturity of the 2-year coupon bond? What is the forward rate for the second year? If the expectations hypothesis is accepted, what are (1) the expected price of the coupon bond at the end of the first year and (2) the expected holding-period return on the coupon bond over the first year? Will the expected rate of return be higher or lower if you accept the liquidity preference hypothesis?