A bond with a face value of $1,000 has 10 years until maturity, carries a coupon rate of 9%, and sells for $1,100. Interest is paid annually. Assume a face value of $1,000 and annual coupon payments. 1) If the bond has a yield to maturity of 9% 1 year from now, what will its price be at that time? 2) What will be the rate of return on the bond? 3) If the inflation rate during the year is 3%, what is the real rate of return on the bond? Please show workings with formulas.
A bond with a face value of $1,000 has 10 years until maturity, carries a coupon rate of 9%, and sells for $1,100. Interest is paid annually. Assume a face value of $1,000 and annual coupon payments. 1) If the bond has a yield to maturity of 9% 1 year from now, what will its price be at that time? 2) What will be the rate of return on the bond? 3) If the inflation rate during the year is 3%, what is the real rate of return on the bond? Please show workings with formulas.
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 4P
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A bond with a face value of $1,000 has 10 years until maturity, carries a coupon rate of 9%, and sells for $1,100. Interest is paid annually. Assume a face value of $1,000 and annual coupon payments.
1) If the bond has a yield to maturity of 9% 1 year from now, what will its price be at that time?
2) What will be the
3) If the inflation rate during the year is 3%, what is the real rate of return on the bond?
Please show workings with formulas.
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