Assume that all interest rates are certain - all investors know how interest rates will change over time. Two years ago, you purchased a 10-year bond with a face value of $1,000.00 and annual coupons of 7.4%. When you purchased the bond, the one year spot rate was 6.3% and the two year spot rate was 9.8%. You reinvested the first coupon payments at the prevailing rate and then sold the bond after two years at a yield to maturity of 10.9%. If your realised compound yield on the bond was 14.4%, what was the bond's initial purchase price?

Assume that all interest rates are certain - all investors know how interest rates will change over time. Two years ago, you purchased a 10-year bond with a face value of $1,000.00 and annual coupons of 7.4%. When you purchased the bond, the one year spot rate was 6.3% and the two year spot rate was 9.8%. You reinvested the first coupon payments at the prevailing rate and then sold the bond after two years at a yield to maturity of 10.9%. If your realised compound yield on the bond was 14.4%, what was the bond's initial purchase price?

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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You purchased a coupon bond that had a maturity of 20 years. The annual coupon interest rate was 10% paid annually, and the par value was $1,000. At the time you purchased the bond, the yield to maturity on the bond was 9%. You sold the bond one year later after receiving the first interest payment. The yield to maturity was 10% when you sold the bond. Calculate the purchase price of the bond. Calculate the selling price of the bond that you received one year later. Calculate the rate of return for the one-year holding period.
You purchased an annual-interest coupon bond one year ago with 7 years remaining to maturity at the time of purchase. The coupon interest rate is 10%, and par value is $1,000. At the time you purchased the bond, the yield to maturity was 9%. If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 8%, your annual total rate of return on holding the bond for that year would have been O 12.58% O 13.53% O4.01% O 14.64% 5.12%
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Two years ago, you invested in a zero coupon bond with a face value $1,000 and 2-year term to maturity for $910. Today, at the date of maturity, the bond issuer announces that default occurs with a renegotiation price $940. If you accept the renegotiation price at the date of maturity, what is your realized annual rate of return?
You bought one of Great White Shark Repellant Co.'s 7.4 percent coupon bonds one year ago for $1,041. These bonds make annual payments and mature 20 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 6 percent. The bonds have a par value of $1,000. If the inflation rate was 4 percent over the past year, what was your total real return on investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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Today you buy ten zero-coupon bonds which will mature in exactly 5 years. Each of these ten bonds has a face value of $100. The price you pay today for each of these bonds is $82. Assume a year goes by. Now there are only 4 years left before these bonds mature. You sell these bonds in the market for $75 per bond. What is the return you have realized on your investment in these bonds? -7.00% -9.26% -8.54% We do not have sufficient information about interest rates to calculate this answer. -9.33%

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