A bond has 10 years until maturity, carries a coupon rate of 9%, and sells for $1,100.

Question:

A bond has 10 years until maturity, carries a coupon rate of 9%, and sells for $1,100. Interest is paid annually.

a. If the bond has a yield to maturity of 9% 1 year from now, what will its price be at that time?

b. What will be the rate of return on the bond?

c. Now assume that interest is paid semiannually. What will be the rate of return on the bond?

d. If the inflation rate during the year is 3%, what is the real rate of return on the bond?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...