Question
bond value, interest rate changes, and return you are interested in buying a bond with 6% coupon rate (paid annually) a maturity in six years,
bond value, interest rate changes, and return
you are interested in buying a bond with 6% coupon rate (paid annually) a maturity in six years, and a yield to maturity of 7%. assume that par value is $1000.00.
a. what is the bond's market price?
b. suppose you buy the bond today, hold it a year, just long enough to collect one $60 interest payment, and then sell it. When you sell it the yield to maturity is still 7%. what price do you receive when you sell it?
c. Counting both the change in price and the coupon payment that you received, what percentage return did you earn over the year?
d. assume instead that when you are ready to sell the bonds yield to maturity has dropped to 6%. what price do you receive and what return do you earn for the year?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started