You buy a bond today that has a coupon rate of 6.5%, with 10 years to maturity, and is trading at aYTM of 5.6%Assume that one year later, the bond is trading at a YTM of 5.0%What was the annual percentage return you earned by owning the bond?TIP: The annual return on a bond is equal to (Price(1) - P(0) + Coupon Payments)/P(0)See textbook, Section 6.4 Bond Rates of Return. Remember that when you calculate the value of thebond in one year, you will have received two coupons.Also, when you use the above formula, the prices of the bonds P(0) and P(1), as well as the coupons,should be calculated as dollars, not percentages of par value.

Coupon Rate = 6.5% Time period =10 Years YTM = 5.6%

Answered: You buy a bond today that has a coupon…

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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Suppose you buy a bond with a coupon of 8.2 percent today for $1,100. The bond has 7 years to maturity. Assume interest payments are reinvested at the original YTM. a. What rate of return do you expect to earn on your investment? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Rate of return % b. Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. What price will your bond sell for? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Price
Consider a bond that has a face value of $1,000. The bond has a maturity of 25 years and pays coupons of 5.5% per annum. If the bond's required rate of return is 8.0% per annum nominal, and coupons are received semi-annually, what is the current market price of the bond?
Suppose you purchase a 10-year bond with 6.3% annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 4.6% when you purchased and sold the bond, A)What cash flows will you pay and receive from your investment in the bond per $100 face value? B)What is the annual rate of return of your investment?
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assume that forward rates for the next 2 years are given by: r(0.5)=6%, r(1)=7%; r(1.5)=8% and r(2)=9%. In addition, the price of a 7% coupon bond maturing 2.5 years from now is equal to $101 and the price of a 6% coupon bond maturing 3 years from now is equal to $99 a) Find the 2.5-year forward rate r(2.5). Keep at least 6 decimal digits while doing calculations and reporting the answer. b) Find the 3 year forward rate r(3). Keep at least 6 decimal digits while doing calculations and reporting the answer.
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