B 8.00% 20 1,000 10.00% 3 6.00% 828.41 Step 1: Find the coupon payments plus the interest-on-interest at the end of investment horizon. Coupon rate (%) 5 Years to maturity - Par value (M, S) - YTM (%) Investment horizon (years) Number of periods (n) 0 Semi-annual coupon payment (C, S) 1 Reinvestment rate %) 2 Semi-annual reinvestment rate (",%) 3 Price value () 4 Coupon payments + interest-on-interest (S) 5 6 Step 2: Calculate the projected sale price (i.e., the horizon price). 7 Years to maturity 8 Yield (end-of-horizon. %) 9 Number of periods (m) 0 Semi-annual yield (", %) 1 Horizon price (8) 2 Total future value (S) 3 Semi-annual return (%) 4 Effective total return (%) 17 7.00% 5 6 1 Answers are to be entered in the yellow-shaded areas. 2 3 Bond A: Total return 4 12.0% 12.0% 5 Reinvestme Yield at end of horizon 6 nt rate(%) 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 7 3.0% 8 3.5% 9 4.0% 10 4.5% 11 5.0% 12 5.5% 13 6.0% 14 6.5% 15 16 Repeat for bond B. 17 Bond B: Total return 18 19 Reinvestme Yield at end of horizon 20 nt rate 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 21 3.0% 22 3.5% 23 4.0% 24 4.5% 25 5.0% 26 5.5% 27 6.0% 28 6.5% 29 30 31 Relative performance: Total return for Bond A minus total return for Bond B 32 33 Reinvestme Yield at end of horizon 34 nt rate(% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 35 3.0% 36 3.5% 37 4.0% 38 4.5% 39 5.0% 40 5.5% 41 6.0% 42 6.5% 43 14 12.0% B 8.00% 20 1,000 10.00% 3 6.00% 828.41 Step 1: Find the coupon payments plus the interest-on-interest at the end of investment horizon. Coupon rate (%) 5 Years to maturity - Par value (M, S) - YTM (%) Investment horizon (years) Number of periods (n) 0 Semi-annual coupon payment (C, S) 1 Reinvestment rate %) 2 Semi-annual reinvestment rate (",%) 3 Price value () 4 Coupon payments + interest-on-interest (S) 5 6 Step 2: Calculate the projected sale price (i.e., the horizon price). 7 Years to maturity 8 Yield (end-of-horizon. %) 9 Number of periods (m) 0 Semi-annual yield (", %) 1 Horizon price (8) 2 Total future value (S) 3 Semi-annual return (%) 4 Effective total return (%) 17 7.00% 5 6 1 Answers are to be entered in the yellow-shaded areas. 2 3 Bond A: Total return 4 12.0% 12.0% 5 Reinvestme Yield at end of horizon 6 nt rate(%) 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 7 3.0% 8 3.5% 9 4.0% 10 4.5% 11 5.0% 12 5.5% 13 6.0% 14 6.5% 15 16 Repeat for bond B. 17 Bond B: Total return 18 19 Reinvestme Yield at end of horizon 20 nt rate 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 21 3.0% 22 3.5% 23 4.0% 24 4.5% 25 5.0% 26 5.5% 27 6.0% 28 6.5% 29 30 31 Relative performance: Total return for Bond A minus total return for Bond B 32 33 Reinvestme Yield at end of horizon 34 nt rate(% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 35 3.0% 36 3.5% 37 4.0% 38 4.5% 39 5.0% 40 5.5% 41 6.0% 42 6.5% 43 14 12.0%