Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Suppose that you bought a 20-year, 6
Suppose that you bought a 20-year, 6.5% annual coupon bond with face (par) value of $1,000, last year at yield to maturity 9.75%. What is your total rate of return if after holding it for one year, you sell it at current yield 9.19%?
Expert Solution
Step: 1. Finding Beginning Value of the Bond
a.) We have been given:
Face Value of The bond = $1000
Yield to maturity (r) = 9.75%
Number of years to maturity (n) = 20 years
Coupon Rate = 6.5%
Coupon Amount = $65
b.) Market price of the Bond =
65 
PVAF(9.75%, 20) + 1000 PVIF (9.75%, 20)
Side Note:- i) PVAF = [1-1/(1+0.0975)20]/0.0975
= 8.66088087464
ii) PVIF = 1/(1+0.0975)20
= 0.15556411463
65 8.66088087464 + 1000 0.15556411463
562.95725685 + 155.56411463
718.5214
$718.52
Step: 2. Finding Ending Value of the Bond=
a.) We have been given:
Face Value of The bond = $1000
Yield to maturity (r) = 9.19%
Number of years to maturity (n) = 19 years
Coupon Rate = 6.5%
Coupon Amount = $65
b.) Market price of the Bond =
65 PVAF(9.19%, 19) + 1000 PVIF (9.19%, 19)
Side Note:- i) PVAF = [1-1/(1+0.0919)19]/0.0919
= 8.83395823384
ii) PVIF = 1/(1+0.0919)19
= 0.18815923819
65 8.83395823384 + 1000 0.18815923819
574.2073 + 188.1592
762.3665
$762.37
Step: 3. Rate of Return on bond =
Return = [Ending Value / Beginning Value] - 1
= [762.37 / 718.52] - 1
= 0.061028
= 6.10%
Therefore answer is 6.10%.
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
