You purchase a corporate bond with a face value = $2000, coupon rate = 7%, years to maturity = 30, when the discount

Question

You purchase a corporate bond with a face value = $2000, coupon rate = 7%, years to maturity = 30, when the discount rate = 5%. After 1 year(s) and after receiving the last period's coupon, you sell the bond when interest rates are 6%. What is your holding period return for this bond? Assume the bond pays semiannual coupons at the end of each period.

Help In Homework · Accepted Answer

K = Nx2 Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2 k=1 K =30x2 Bond Price =∑ [(7*2000/200)/(1 + 5/200)^k] + 2000/(1 + 5/200)^30x2 k=1 Bond Price = 2618.17 Using Calculator: press buttons "2ND"+"FV" then assign PMT = Par value * coupon %/coupons per year=2000*7/(2*100) I/Y =5/2 N =30*2 FV =2000 CPT PV Using Excel =PV(rate,nper,pmt,FV,type) =PV(5/(2*100),2*30,-7*2000/(2*100),-2000,) K = Nx2 Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2 k=1 K =29x2 Bond Price =∑ [(7*2000/200)/(1 + 6/200)^k] + 2000/(1 + 6/200)^29x2 k=1 Bond Price = 2273.31 Using Calculator: press buttons "2ND"+"FV" then assign PMT = Par value * coupon %/coupons per year=2000*7/(2*100) I/Y =6/2 N =29*2 FV =2000 CPT PV Using Excel =PV(rate,nper,pmt,FV,type) =PV(6/(2*100),2*29,-7*2000/(2*100),-2000,) rate of return/HPR = ((Selling price+Number of Coupon amount*Coupon amount)/Purchase price-1) =((2273.31+2*70)/2618.17-1) =-7.82%

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You purchase a corporate bond with a face value = $2000, coupon rate = 7%, years to maturity = 30, when the discount rate = 5%

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