chapter 7 question 19 A 6.45 percent coupon bond with 24 years left to maturity
ID: 2712229 • Letter: C
Question
chapter 7 question 19
A 6.45 percent coupon bond with 24 years left to maturity is priced to offer a 5.7 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.2 percent.
What would be the total return of the bond in dollars? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)
What would be the total return of the bond in percent? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)
What would be the total return of the bond in dollars? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)
Explanation / Answer
What would be the total return of the bond in dollars? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)
Assuming Annual Coupon Bond
Purchase Bond Value
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the period) = 24
PV (indicates the price) = ?
PMT (indicate the annual payment) = 1000*6.45% = 64.50
FV (indicates the face value) = 1000
Rate (indicates YTM) = 5.7%
Bond Value = pv( 5.7%,24,64.50,1000)
Bond Value = $ 1096.79
Bond Value after one year
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the period) = 24 - 1 = 23
PV (indicates the price) = ?
PMT (indicate the annual payment) = 1000*6.45% = 64.50
FV (indicates the face value) = 1000
Rate (indicates YTM) = 6.2%
Bond Value = pv( 6.2%,23,64.50,1000)
Bond Value = $ 1030.21
Total return = Bond Value after one year - Purchase Bond Value + Annual Coupon
Total return = 1030.21 - 1096.79 + 64.50
Total return = -2.08
What would be the total return of the bond in percent? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)
Total return = Total return in Dollar/Purchase Bond Value
Total return = -2.08/1096.79
Total return = -0.19%
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