3. Three years ago you purchased a bond for $850 with an original maturity of 10 years, a coupon rateof 8% (paid annually), and a $1,000 par value. Back then your required return was 10%. Now, 3years later you want to sell the bond, but rates have increased and you can sell it for only $817.45.a.What is your holding period return (realized yield) over this 3-yr period? A timeline might help.b. Calculate the price of the bond 8 years after it was originally issued assuming the required returnon the bond at T-8 is 11%. HINT: Draw a timeline.

Price of bond is the present value of coupon payments plus present value of the par value of the…

Answered: hree years ago of 8% (paid ann years…

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hree years ago of 8% (paid ann years later you w 1. What is your Calculate the on the bond a

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

3. Three years ago you purchased a bond for $850 with an original maturity of 10 years, a coupon rate
of 8% (paid annually), and a $1,000 par value. Back then your required return was 10%. Now, 3
years later you want to sell the bond, but rates have increased and you can sell it for only $817.45.
a.
What is your holding period return (realized yield) over this 3-yr period? A timeline might help.
b. Calculate the price of the bond 8 years after it was originally issued assuming the required return
on the bond at T-8 is 11%. HINT: Draw a timeline.

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