Suppose you buy a 6.2 percent coupon bond today for $1,090. The bond has 5 years
ID: 2777508 • Letter: S
Question
Suppose you buy a 6.2 percent coupon bond today for $1,090. The bond has 5 years to maturity.
What rate of return do you expect to earn on your investment? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. What price will your bond sell for? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
What is the annual realized yield on your investment? (Negative amounts should be indicated by a minus sign. Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Suppose you buy a 6.2 percent coupon bond today for $1,090. The bond has 5 years to maturity.
Explanation / Answer
Answer (a)
Answer (b)(1)
Answer b(2)
Since the bond is compounded yearly ie one time per year, Annualized yield will be Interest rate ie 6.2%
Present Value of Bond 1090 Face Value/ maturity 1000 Coupon rate 6.2% Coupon Interest 1000*6.2% 62 Years to Maturity 5 Approximate YTM under Best assumption (Coupon Interest+((MV-PV)/Remaining Life))/ ((MV+PV)/2) (62+((1000-1090)/5))/((1000+1090)/2) (62-18)/1037.5 = 44/1045 = 4.21%Related Questions
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