You buy a(n) 6.6% coupon, 7-year maturity bond for $964. A year later, the bond

Question

You buy a(n) 6.6% coupon, 7-year maturity bond for $964. A year later, the bond price is $1,104. Assume coupons are paid once a year and the face value is $1,000.

What is the new yield to maturity on the bond (one year from now)?

What is your bond's rate of return over the year?

You buy a(n) 6.6% coupon, 7-year maturity bond for $964. A year later, the bond price is $1,104. Assume coupons are paid once a year and the face value is $1,000.

What is the new yield to maturity on the bond (one year from now)?

What is your bond's rate of return over the year?

Explanation / Answer

You buy a(n) 6.6% coupon, 7-year maturity bond for $964. A year later, the bond price is $1,104. Assume coupons are paid once a year and the face value is $1,000.

What is the new yield to maturity on the bond (one year from now)?

YTM = rate(nper,pmt,pv,fv)

Nper (indicates the period) = 7-1= 6

PV (indicates the price) = 1104

PMT (indicate the annual payment) = 1000*6.6% = 66

FV (indicates the face value) = 1000

Rate (indicates YTM) = ?

YTM = rate( 6,66,-1104,1000)

YTM = 4.58%

What is your bond's rate of return over the year?

Bond's rate of return over the year = (Coupon + Current Price - purchase price)/purchase price

Bond's rate of return over the year = (66+1104-964)/964

Bond's rate of return over the year = 21.37%

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