Consider a bond paying a coupon rate of 9.25% per year semiannually when the mar
ID: 2713253 • Letter: C
Question
Consider a bond paying a coupon rate of 9.25% per year semiannually when the market interest rate is only 3.7% per half-year. The bond has five years until maturity.
Find the bond's price today and ten months from now after the next coupon is paid. (Do not round intermediate calculations. Round your answers to 2 decimal places.
What is the total rate of return on the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Consider a bond paying a coupon rate of 9.25% per year semiannually when the market interest rate is only 3.7% per half-year. The bond has five years until maturity.
Explanation / Answer
Current price of bond= PV of coupon payments +pv of par value
Assuming the par value of bond is 100
Here c=9.25%/2*100=4.625 n= 10 i=3.7%
=38.08
PV of par =100/1.037^10=69.54
Current price =38.08+69.54=$107.62
b) Total return on bond :
Future value of the coupon payments
FV(3.7%,10,4.625,,0)=54.76
Cash flow after 5 years = 54.76+100=154.76
Rate of return =(154.76/100)^(1/10)-1
=4.46%(semi annual(
=4.46*2= 8.93% ANNUALLY.
=C [(1 - (1 / (1 + i)^n)) / i]Related Questions
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