(10% Interest Payment, 20Years to Maturity) Yield to Maturity BondPrice 2% . . .

Question

(10% Interest Payment, 20Years to Maturity)

Yield to Maturity BondPrice

2% . . . . . . . . . . . . . . .$2,308.10

4 . . . . . . . . . . . . . . .1,815.00

6 . . . . . . . . . . . . . . .1,459.00

7 . . . . . . . . . . . . . . .1,317.40

8 . . . . . . . . . . . . . . .1,196.80

9 . . . . . . . . . . . . . . .1,090.90

10 . . . . . . . . . . . . . . .1,000.00

11 . . . . . . . . . . . . . . .920.30

12 . . . . . . . . . . . . . . .850.90

13 . . . . . . . . . . . . . . .789.50

14 . . . . . . . . . . . . . . .735.30

16 . . . . . . . . . . . . . . .643.90

20 . . . . . . . . . . . . . . .513.00

25% . . . . . . . . . . . . . . . $ 407.40

Go to Table 10–1 which is based on bonds paying 10 percentinterest for

20 years. Assume interest rates in the market (yield tomaturity) decline from

11 percent to 8 percent:

a. What is the bond price at 11 percent?

b. What is the bond price at 8 percent?

c. What would be your percentage return on investmentif you bought when

Explanation / Answer

for A & B... just follow the table A) @ 11%, bond price is 920.30 B) @ 8%, bond price is 1196.80 C) return on investment is [(sell price)-(buy price)]/(buy price)*100% so (1196.80-920.30)/920.30 *100% = 30.04%

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