You have paid $120 for an 5.5% coupon bond with a face value of $1,000 that matures in five years. You plan on holding the bond for one year. If you want to earn a 5.5% rate of return on this investment, what price must you sell the bond for?
You have paid $120 for an 5.5% coupon bond with a face value of $1,000 that matures in five years. You plan on holding the bond for one year. If you want to earn a 5.5% rate of return on this investment, what price must you sell the bond for?
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
You have paid $120 for an 5.5% coupon bond with a face value of $1,000 that matures in five years. You plan on holding the bond for one year. If you want to earn a 5.5% rate of
Expert Solution
Step 1
Bond price (P0) = $120
Coupon (C) = 5.5% of $1000 = $55
Let the selling price after 1 year = P1
Total return required = 5.5%
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