You purchased a zero coupon bond one year ago for $109.56. The market interest r

Question

You purchased a zero coupon bond one year ago for $109.56. The market interest rate is now 11 percent. If the bond had 21 years to maturity when you originally purchased it, what was your total return for the past year? Assume semiannual compounding. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

You purchased a zero coupon bond one year ago for $109.56. The market interest rate is now 11 percent. If the bond had 21 years to maturity when you originally purchased it, what was your total return for the past year? Assume semiannual compounding. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Price at the End of Year 1 = PV(Rate,Nper,PMT,FV) = PV(11%/2,40,0,1000) = 117.46

Total Return = (117.46 - 109.56)/109.56*100 = 7.21%

Answer is 7.21%

Thanks.

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