Suppose you bought a 7 percent annual coupon, a 20-year bond last year when it was first issued. You paid 1,000 for a 1,000 face value bond. The yield-to-maturity of your bond was therefore 7%. If interest rates suddenly rise to 15 percent this year, and hence your bond now has to deliver a 15% yield to maturity. What is your one-year rate of return if you sell the bond this year? -49.58% -8% +49.58% +8% -42.59%
Suppose you bought a 7 percent annual coupon, a 20-year bond last year when it was first issued. You paid 1,000 for a 1,000 face value bond. The yield-to-maturity of your bond was therefore 7%. If interest rates suddenly rise to 15 percent this year, and hence your bond now has to deliver a 15% yield to maturity. What is your one-year rate of return if you sell the bond this year? -49.58% -8% +49.58% +8% -42.59%
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...
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![Suppose you bought a 7 percent annual coupon, a 20-year bond last year when it was first issued. You
paid 1,000 for a 1,000 face value bond. The yield-to-maturity of your bond was therefore 7%. If
interest rates suddenly rise to 15 percent this year, and hence your bond now has to deliver a 15% yield
to maturity. What is your one-year rate of return if you sell the bond this year?
O-49.58%
-8%
+49.58%
+8%
-42.59%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F85fbde44-2d0e-40ab-9364-8dbbe2528f61%2Fad2e1aa9-a8f4-4a04-a734-3dc2c1123824%2Fh0jzd95_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose you bought a 7 percent annual coupon, a 20-year bond last year when it was first issued. You
paid 1,000 for a 1,000 face value bond. The yield-to-maturity of your bond was therefore 7%. If
interest rates suddenly rise to 15 percent this year, and hence your bond now has to deliver a 15% yield
to maturity. What is your one-year rate of return if you sell the bond this year?
O-49.58%
-8%
+49.58%
+8%
-42.59%
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