Assume you have a 1 year investment horizon. A bondhas 10% year coupon rate and pays the coupon onceper year. The bond matures in 10 years and is priced toyield 8% this year. If you expect the yield to maturity onthe bond to be 7% at the beginning of the next year,what is your holding period return, assuming you havereceived the coupon for this year.

To evaluate a bond's holding period return over a one-year horizon, we must first calculate its…

Answered: Assume you have a 1 year investment…

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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Similar questions

You buy an 8% coupon, 20-year maturity bond when its YTM is 9%. A year later, the YTM is 10%.What is your rate of return over the year?
You buy a semiannually paying coupon bond with a face value of $1,000 and a coupon rate of 8%. The bond matures in 20 years from today. Currently, the bond has a yield to maturity of 9%. Suppose that the yield to maturity changes to 10% six months later. What is your rate of return from your investment over the six months?
Suppose that all investors expect that interest rates for the 4 years will be as follows: Year 0 4% (today) Year 1 5% Year 2 6% Year 3 7% What is the price of a 2-year maturity bond with a 10% coupon rate paid annually? (Par value =1,000).
A newly issued bond pays its coupons once annually. Its coupon rate is 5%, its maturity is 20 years, and its yield to maturity is 8%.a. Find the holding-period return for a 1-year investment period if the bond is selling at a yield to maturity of 7% by the end of the year.b. If you sell the bond after one year, what taxes will you owe if the tax rate on interest income is 40% and the tax rate on capital gains income is 30%? The bond is subject to original-issue discount tax treatment.c. What is the after-tax holding-period return on the bond?d. Find the realized compound yield before taxes for a 2-year holding period, assuming that (i) you sell the bond after two years, (ii) the bond yield is 7% at the end of the second year, and (iii) the coupon can be reinvested for one year at a 3% interest rate.e. Use the tax rates in part (b) to compute the after-tax 2-year realized compound yield. Remember to take account of OID tax rules.
Suppose you bought a 5-year Treasury note (paying annual coupon of 2.0% and having face value of $1000) at par value. Two years later you sold the bond at a quoted price of $1020. If you can reinvest the coupons at the note's current yield to maturity, what is your geometric ANNUALIZED average holding period return over the 2-year period
A bond has a face value of $1,000, has 5 years until maturity, and an annual coupon rate of 7%? It yields 5% currently. By how much will the price change over the next year if the yield remains constant? Multiple Choice
You have a $1000 bond at 5% (coupon rate) that matures in 7 years and pays interest annually. You want to sell it, but the current interest rate on a similar investment that matures in 7 years is now paying 6% interest. What is the current value of your bond?
You purchased a bond for 1,100. The bond has a coupon rate of 9 percent, which is paid semiannually. It matures in 17 years and has a par value of 1,000. What is your expected rate of return. How can i solve this with a financial calculator?
Suppose you purchased a ten-year, 8% coupon bond(annual coupon payment) at $980. Two years later, you decide to take a vacation and sell the bond to acquire the necessary funds. At the time you sell the bond, eight-year bonds with similar characteristics sell for yields of 9%. What is your realized yield on the bond?
You invest in a 10-year Peloton bond that pays interest of 8.7% per year. If inflation is 6.1% per year, what is: The exact, real interest rate (Your answer should be a % carried to 3 places), and The approximate real interest rate? (Your answer should be a % carried to 1 place)
Suppose you are interested in buying a 1.5% semi-annual coupon treasury bond maturing in exactly 10 years. You think appropriate discount rate for this bond (aka yield to maturity or YTM) is 3%. How much should you pay for this bond if its par value is $1,000?
Consider the following scenario: A bond has a price of $95 (Par Value 100). It matures in 7 years and pays coupons semi-annually. Find the coupon rate of the bond (in annual terms) that would yield a duration of 5.5.

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