Chapter 15, Problem 13PS

a.

Summary Introduction

To calculate: The price of the coupon bond when investor purchases a 3 year bond with annual payment of $60 and par value $1000.

Introduction:

Bond price: It is supposed to be the present value of a bond derived after discounting the future cash flows that are expected to be generated by a bond. It is also referred as selling price of the bond.

b.

Summary Introduction

To determine: The yield to maturity of the coupon bond

Introduction:

Yield to maturity: In short it is represented as YTM. YTM is supposed to be the total return which is expected from a bond when the bond is held till the maturity date.

c.

Summary Introduction

To determine: The expected realized compound rate of the coupon bond in the presence of expectations hypothesis theory.

Introduction:

Realized yield: Sometimes, the bonds are sold before its maturity date. The total return from that sort of a bond is called realized yield.

d.

Summary Introduction

To predict: The expected rate of return on the coupon bond for the 1-year holding period, supposing that the yield curve in one year is

Introduction:

Expected rate of return: When an investment is made, the investor expects or anticipates some return. The rate at which this anticipated or expected returns are earned is called expected rate of return. It is also called as anticipated rate of return.