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
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? (Assume annual interest payments.)
Please carefully at question c), where I think the formula is Rate of return= (Annual coupon + Price change)/ Investment, then the answer should be
Rate of return= [(45x2) + (1000-1100)]/1100= -.909% , which is the same to question b)
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