Suppose you bought a bond with an annual coupon of 6 percent one year ago for $1,010.
Question:
Suppose you bought a bond with an annual coupon of 6 percent one year ago for $1,010. The bond sells for $1,025 today.
a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?
b. What was your total nominal rate of return on this investment over the past year?
c. If the inflation rate last year was 3 percent, what was your total real rate of return on this investment?
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Related Video
Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.
Students also viewed these Business questions
-
Suppose you bought a bond with an annual coupon of 7 percent one year ago for $970. The bond sells for $940 today. a. Assuming a $1,000 face value, what was your total dollar return on this...
-
Suppose you bought a bond with an annual coupon of 7 percent one year ago for $1,010. The bond sells for $985 today. a. Assuming a $1,000 face value, what was your total dollar return on this...
-
Suppose you bought a bond with an annual coupon rate of 6.5 percent one year ago for $1,032. The bond sells for $1,020 today. a. Assuming a $1,000 face value, what was your total dollar return on...
-
Assume that a company is going to invest 900,000 USD in a new project. We expect that the invested capital in the fixed assets will be fully depreciated within 3 years in a linear way. The project is...
-
Explain how metal ions such as Pb2+ and Zn2+ are separated by precipitation with hydrogen sulfide.
-
If the sea power plant described in Problem 11.5 is to deliver power at \(\$ 8 / 10^{6} \mathrm{Btu}\), estimate the maximum permissible cost of the condenser and evaporator heat-exchanger surface in...
-
With any model (McCabe-Thiele, Kremser, triangular diagram, computer simulation, mass transfer analysis), you should ask how well the model captures key aspects of the physical situation. For staged...
-
Oscars Bowling Inc. wants to break into the Phoenix metropolitan market with one of its super-sized 200 lane, 24-hour bowling alleys, It. however, only has enough capital to build one facility. Oscar...
-
Headland Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music Headland uses two sales promotion techniques-warranties and...
-
Willow Window Washing Services prepares adjustments monthly and shows the following selected accounts on its December 31, 2020, unadjusted trial balance: Required Prepare the required monthly...
-
Given that Hertz was down by 88 percent in the first half of 2020, why did some investors hold the stock? Why didnt they sell out before the price declined so sharply?
-
We are evaluating a project that costs $845,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected...
-
The El Paso Division of the Tejas Fence Co. is currently operated as a cost center. The following standard costs have been determined for the production of one metal gate at the El Paso Division....
-
(a) Prepare and present one case for a simulated conciliation session. (b) The case does not settle at conciliation and it goes on to a hearing. The scenario You have a management agency agreement...
-
2. What is the output of the following C++ code, given the input data 5, 6, 3 and 1? #include using namespace std; struct PersonNode int SocSecNum; PersonNode Next; ); int main() int SSNumber; I...
-
How does Firestone's response to the Ebola crisis differ from its response to Liberia's civil wars? How much of Firestone's actions were influenced by financial considerations and how much from...
-
A 1 kg mass oscillates on a 5 N/m spring. The damping constant of this spring is b = 2 kg/s. Helpful Information Find the time constant, T, of this spring. T = 0.44 S ? 0%
-
Imagine that you were a project manager for an exercise trail being built in a city park, which is in the planning phases. After carefully gathering all the stakeholder requirements and information...
-
The following is a December 31, 2018, post-closing trial balance for the Jackson Corporation. Required: Prepare a classified balance sheet for Jackson Corporation at December 31, 2018. Account Title...
-
Research an article from an online source, such as The Economist, Wall Street Journal, Journal of Economic Perspectives, American Journal of Agricultural Economics, or another academic journal. The...
-
In the previous problem, what is the probability that the return is less than 100 percent? (Think.) What are the implications for the distribution of returns?
-
A stock has a beta of 1.15 and an expected return of 14 percent. A risk-free asset currently earns 4.2 percent. a. What is the expected return on a portfolio that is equally invested in the two...
-
In the previous problem, what would the risk-free rate have to be for the two stocks to be correctly priced?
-
Complete the balance sheet and sales information using the following financial data:Total assets turnover: 1 . 2 x Days sales outstanding: 3 5 daysa Inventory turnover ratio: 3 x Fixed assets...
-
The Board President of the nations's largest Pension Fund manager lost a re-election bid in late 2018 due in part to poor financial performance and in part due to her association with ESG investing....
-
Problem 1 4 - 1 5 Finding the WACC [ LO 3 ] You are given the following information for Lighting Power Company. Assume the company s tax rate is 2 1 percent. Debt: 1 1 , 0 0 0 6 percent coupon bonds...
Study smarter with the SolutionInn App