Interest Form × tps//newconnect.mheducation.com/flow/connect.html Homework 4 6 H

Question

Interest Form × tps//newconnect.mheducation.com/flow/connect.html Homework 4 6 Help Save& Exit Submit Saved Check my work A 6-year maturity bond with face value of $1,000 makes annual coupon payments of $88 and is selling at face value. What will be the rate of return on the bond if its yield to maturity at the end of the year is: (Do not round intermediate calculations. Enter your oswers ase percent rounded to 2 decimal places Rate of Return | a. | 6% b.188% c.1108% es Reference links 64 Bond Rates of Return 1° of 25ill Next >

Explanation / Answer

a. rate of return= 7.74%

b. since coupon rate equals YTM, rate of return will be same 8.8%

c. rate of return= 9.1%

Particulars Cash flow Discount factor Discounted cash flow Interest payments-Annuity (6%,6 periods) 88.0 4.9173 432.72 Principle payments -Present value (6%,6 periods) 1,000 0.7050 704.96 A Bond price 1,137.69 Face value 1,000 Premium/(Discount) 137.69 Interest amount: Face value 1,000 Coupon/stated Rate of interest 8.80% Frequency of payment(in months) 12 B Interest amount 1000*0.088*12/12= 88 Present value calculation: yield to maturity/Effective rate 6.00% Effective interest per period(i) 0.06*12/12= 6.000% A/B Rate of return 7.74%

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.