Suppose you buy a 9.8 percent coupon bond today for $1,100. The bond has 7 years

Question

Suppose you buy a 9.8 percent coupon bond today for $1,100. The bond has 7 years to maturity. a. What rate of return do you expect to earn on your investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.) Rate of return 7.89 % b. Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. What price will your bond sell for? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) Price $

Explanation / Answer

Answer:

1100=$98*PVIFA(r%,7)+$1000*PVIF(r%,7)

r=7.89%

Answer:b Now, YTM is 9.89%

Price=$98*PVIFA(9.89%,5)+$1000*PVIF(r%,5)

=996.58

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