You buy a 20-year bond with a coupon rate of 8% that has a yield to maturity of
ID: 2613172 • Letter: Y
Question
You buy a 20-year bond with a coupon rate of 8% that has a yield to maturity of 9%. (Assume a face value of $1,000 and semiannual coupon payments.) Six months later, the yield to maturity is 10%. What is your return over the 6 months? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Negative amount should be indicated by a minus sign.)
You buy a 20-year bond with a coupon rate of 8% that has a yield to maturity of 9%. (Assume a face value of $1,000 and semiannual coupon payments.) Six months later, the yield to maturity is 10%. What is your return over the 6 months? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Negative amount should be indicated by a minus sign.)
Explanation / Answer
Current
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the semi annual period) = 20*2 = 40
PV (indicates the price) = ?
PMT (indicate the semi annual payment) = 1000*8%*1/2 = 40
FV (indicates the face value) = 1000
Rate (indicates Half year YTM) = 9%*1/2 = 4.5%
Bond Value = pv( 4.5%,40,40,1000)
Bond Value = $ 907.99
6 month Later
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the semi annual period) =39
PV (indicates the price) = ?
PMT (indicate the semi annual payment) = 1000*8%*1/2 = 40
FV (indicates the face value) = 1000
Rate (indicates Half year YTM) = 10%*1/2 = 5%
Bond Value = pv(5%,39,40,1000)
Bond Value = $ 829.83
Rate of return = (Bond Value in 6 Month Later - Current Bond Value + Coupon Recieved)/ Current Bond Value
Rate of return = (829.83-907.99 + 40)/907.99
Rate of return = - 4.20%
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