A company issues corporate bonds that have a coupon rate of 4%, pays dividends q

Question

A company issues corporate bonds that have a coupon rate of 4%, pays dividends quarterly, and has a term of 10 years.  Compute the dividend paid per quarter for each bond.

An investor buys 50 of these bonds at face value, and keeps them for the full 10 years.  Compute the rate of return and express the answer to the nearest 0.01%.

An investor buys 50 of these bonds at the discounted price of $95.00 and keeps them for the full 10 years.  Compute the rate of return.  Express your answer to the nearest 0.01 percent

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Explanation / Answer

A company issues corporate bonds that have a coupon rate of 4%, pays dividends quarterly, and has a term of 10 years.  Compute the dividend paid per quarter for each bond.

dividend paid per quarter = 4%*100/4=$1

An investor buys 50 of these bonds at face value, and keeps them for the full 10 years.  Compute the rate of return and express the answer to the nearest 0.01%.

When bonds are purchased at face value, then rate of return = coupon rate = 4%

An investor buys 50 of these bonds at the discounted price of $95.00 and keeps them for the full 10 years.  Compute the rate of return.  Express your answer to the nearest 0.01 percent

let rate return = r

95 = 1*(1-1/(1+r/4)^40)/(r/4) + 100/(1+r/4)^40

rate return ,r= 4.63%

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