maturity) are 9 percent for 20 years on a bond paying 10 percent. a. What is the price of the bond? Bond price b. Assume 10 years have passed and interest rates in the market have gone up to 12 percent. Now, using Table 10-2 for 10 years, what is the price of the bond? Bond price c. What would your percentage return be if you bought the bonds when interest rates in the market were 9 percent for 20 years and sold them 10 years later when interest rates were 12 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
maturity) are 9 percent for 20 years on a bond paying 10 percent. a. What is the price of the bond? Bond price b. Assume 10 years have passed and interest rates in the market have gone up to 12 percent. Now, using Table 10-2 for 10 years, what is the price of the bond? Bond price c. What would your percentage return be if you bought the bonds when interest rates in the market were 9 percent for 20 years and sold them 10 years later when interest rates were 12 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
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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Transcribed Image Text:Refer to Table 10-1, assume interest rates in the market (yield to
maturity) are 9 percent for 20 years on a bond paying 10 percent.
a. What is the price of the bond?
Bond price
b. Assume 10 years have passed and interest rates in the market have
gone up to 12 percent. Now, using Table 10-2 for 10 years, what is the
price of the bond?
Bond price
c. What would your percentage return be if you bought the bonds when
interest rates in the market were 9 percent for 20 years and sold them
10 years later when interest rates were 12 percent? (Do not round
intermediate calculations. Input your answer as a percent rounded to
2 decimal places.)
Return on investment
%
Transcribed Image Text:Table 10-1 Bond price table
(10% Interest Payment, 20 Years to Maturity)
Yield to
PV of
PV of
Maturity
Coupons
Principal
Bond Price
2%
$1,635.14
$672.97
$2,308.11
4%
1,359.03
456.39
1,815.42
6%
1,146.99
311.80
1,458.80
7%
1,059.40
258.42
1,317.82
8%
981.81
214.55
1,196.36
9%
912.85
178.43
1,091.29
10%
851.36
148.64
1,000.00
11%
796.33
124.03
920.37
12%
746.94
103.67
850.61
13%
702.48
86.78
789.26
14%
662.31
72.76
735.07
16%
592.88
51.39
644.27
20%
486.96
26.08
513.04
25%
395.39
11.53
406.92
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