
Bond returns If a bond’s yield to maturity does not change, the return on the bond each year will be equal to the yield to maturity. Confirm this with a simple example of a four-year bond selling at a premium to face value. Now do the same for a four-year bond selling at a discount. For convenience, assume annual coupon payments.

To discuss: Illustrate on return on bond equals yield to maturity (YTM).
Explanation of Solution
4-year bond selling at a premium to face value and the 3% coupon bond is 2%.
If the yield to maturity remain same, 1 year later the bond will sell as follows:
Calculation of interest rate:
Thus, the interest rate equals yield to maturity.

To discuss: Illustrate on return on bond equals yield to maturity (YTM).
Explanation of Solution
4-year bond selling at discount to face value and the 3% coupon bond is 4%.
If the yield to maturity remain same, 1 year later the bond will sell as follows:
Calculation of interest rate:
Thus, the interest rate equals yield to maturity.
Thus, the interest rate equals yield to maturity.
Want to see more full solutions like this?
Chapter 3 Solutions
Principles of Corporate Finance
- I need help with this situation and financial accounting questionarrow_forwardRemaining Time: 50 minutes, 26 seconds. * Question Completion Status: A Moving to the next question prevents changes to this answer. Question 9 Question 9 of 20 5 points Save Answer A currency speculator wants to speculate on the future movements of the €. The speculator expects the € to appreciate in the near future and decides to concentrate on the nearby contract. The broker requires a 2% Initial Margin (IM) and the Maintenance Margin (MM) is 75% of IM. Following € Futures quotes are currently available from the Chicago Mercantile Exchange (CME). Euro (CME)- €125,000; $/€ Open High Low Settle Change Open Interest June 1.2216 1.2276 1.2175 1.2259 -0.0018 Sept 1.2229 1.2288 1.2189 1.2269 0.0018 255,420 19,335 In addition to the information provided above, consider the following CME quotes that are available at the end of day one's trading: Euro (CME) - €125,000; $/€ Open High Low June 1.2216 Sept 1.2229 1.2276 1.2288 Settle Change Open Interest 1.2175 1.2176 -0.0083 255,420 1.2189…arrow_forwardI need help with this problem and financial accounting questionarrow_forward
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author: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 ProfessorPublisher:McGraw-Hill Education





