a. What is the bond price at 20 percent? b. What is the bond price at 16 percent? c. What would be your percentage return on the investment if you bought when rates were 20 percent and sold when rates were 16 percent?
a. What is the bond price at 20 percent? b. What is the bond price at 16 percent? c. What would be your percentage return on the investment if you bought when rates were 20 percent and sold when rates were 16 percent?
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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Question
Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decrease from 20 to 16 percent.
a. What is the
b. What is the bond price at 16 percent?
c. What would be your percentage return on the investment if you bought when rates were 20 percent and sold when rates were 16 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
Transcribed Image Text:### Table 10-1: Bond Price Table
#### Bond Price
| Yield to Maturity (%) | 0.4% | 2% | 4% | 5% | 7% | 10% | 12% | 15% | 20% | 25% |
|-----------------------|-----------|-----------|-----------|-----------|-----------|----------|----------|----------|----------|----------|
| Bond Price ($) | 39,366.11 | 34,526.42 | 25,694.40 | 21,935.41 | 14,576.82 | 9,386.02 | 7,361.61 | 5,365.03 | 2,849.62 | 1,636.92 |
#### Principal
| PV of Principal ($) | 452.97 | 306.90 | 208.29 | 160.92 | 100.66 | 62.09 | 48.29 | 34.80 | 17.96 | 11.53 |
#### PV of Coupons
| Coupon ($1,000 Annual Payment) | 1,385.14 | 1,018.40 | 738.05 | 641.19 | 483.57 | 372.11 | 294.06 | 214.63 | 108.67 | 51.36 |
#### Total PV of Cash Flows
| Total Value ($) | 1,838.11 | 1,325.30 | 946.34 | 802.11 | 584.23 | 434.20 | 342.35 | 249.43 | 126.63 | 62.89 |
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This table provides information on the present value (PV) of a bond's principal and coupon payments based on different yields to maturity (YTM). The sections detailed in the table include:
1. **Bond Price**: The price of the bond at varying yields to maturity, ranging from 0.4% to 25%.
2. **Principal**: The present value (PV) of the bond's principal under different yields to maturity.
3. **Present Value (PV) of Coupons**: The present value
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