What is the bond price at 12 percent? b. What is the bond price at 8 percent? c. What would be your percentage return on investment if you bought when rates were 12 percent and sold when rates were 8 percent?
What is the bond price at 12 percent? b. What is the bond price at 8 percent? c. What would be your percentage return on investment if you bought when rates were 12 percent and sold when rates were 8 percent?
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
Related questions
Question
Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decline from 12 percent to 8 percent.
a. What is the
b. What is the bond price at 8 percent?
c. What would be your percentage return on investment if you bought when rates were 12 percent and sold when rates were 8 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
Transcribed Image Text:## Table 10-1: Bond Price Table
This table illustrates the variations in bond prices with respect to different yields to maturity, considering a bond with a 10% interest payment over a period of 20 years until maturity.
### Table Breakdown:
#### Columns:
- **Bond Price:** This row presents the calculated price of the bond.
- **Yields to Maturity:** Each column represents the bond prices at different yields to maturity ranging from 4% to 25%.
#### Rows (Data Cells):
1. **Principal (PV of $1):**
- 4%: 9,234.12
- 6%: 5,734.45
- 8%: 3,743.42
- 10%: 2,603.47
- 12%: 1,895.21
- 14%: 1,386.23
- 16%: 1,022.00
- 18%: 762.64
- 20%: 583.49
- 25%: 292.21
2. **PV of Coupon (10% Interest Payment):**
- 4%: 9,385.11
- 6%: 9,357.7
- 8%: 9,168.56
- 10%: 8,901.47
- 12%: 8,600.88
- 14%: 8,292.58
- 16%: 7,989.18
- 18%: 7,695.67
- 20%: 7,411.10
- 25%: 6,366.00
3. **Total Bond Price:**
- 4%: 24,896.11
- 6%: 15,139.79
- 8%: 11,584.00
- 10%: 9,504.94
- 12%: 8,006.09
- 14%: 6,867.87
- 16%: 5,935.17
- 18%: 5,111.76
- 20%:
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education