Question
A swA $1,000 maturity value bond currently has 15 years left to maturity. The bond has an 8.5% coupon rate and pays interest annually. a.)
A swA $1,000 maturity value bond currently has 15 years left to maturity. The bond has an 8.5% coupon rate and pays interest annually. a.) If you want to earn a 7% rate of return, how much would you you be willing to pay today for this bond? b.) Suppose you buy the bond fo rthe value you calculated in part a. After holding the bond for 2 years and receiving 2 interest payments, you sell the bond for $1,032.43. What annual, compound rate of return have you earned over this 2 year period? Prove your answer by showing that PV get equals PV give up. c.) Suppose you buy th ebond fo rthe value you calculated in part a. After holding the bond for 2 years and receiving 2 interest payments, you sell the bond. What price must you receive (at time 2) if you now want to receive a 10% rate of return? d.) Supose you buy the bond for the value calculated in part a. After holding the bond for 6 years and receiving 6 interest payments, the bond defaults with no chance of paying you anything more. What annual, compound rate of return have you earned over this 6 year period?
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