A $10,000, 14% coupon, 25-year bond issued on June 15, 1984, was purchased on March 20, 1987,

Question:

A $10,000, 14% coupon, 25-year bond issued on June 15, 1984, was purchased on March 20, 1987, to yield 9% to maturity, and then sold on April 20, 1990, to yield the purchaser 11.5% to maturity. What was the investor’s capital gain or loss:
a. In dollars?
b. As a percentage of his original investment? Problems 17 through 22 require the calculation of quoted bond prices and accrued interest.

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Given FV 10000 Maturity date June 15 2009 On the date of purchaseMar 20 1987 On the date of sale Apr20 1990 a Step 1 Determine the purchase price Time from preceding interest payment date tomaturity June 15 2009 Dec15 1986 45 halfyears 1478909 Time from preceding interest payment date topurchase date Mar 20 1987 Dec 15 1986 95 days Number of days in current interest payment interval June 15 1987 Dec 15 1986 182 days Price Mar 20 1987 1478909 1045 95182 1513282 Step 2 Determinethe selling price Time from preceding interest payment date tomaturity June 15 2009 Dec15 1989 39 halfyears 1192827 Time from preceding interest payment date to dateof sale Apr ...View the full answer

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