Problem #9

You purchased a coupon bond that had a maturity of 20 years. The annual coupon interest rate was 10% paid annually, and the par value was $1,000. At the time you purchased the bond, the yield to maturity on the bond was 9%. You sold the bond one year later after receiving the first interest payment. The yield to maturity was 10% when you sold the bond.

(a) Calculate the purchase price of the bond

(b) Calculate the selling price of the bond that you received one year later.

(c) Calculate the rate of return for the one-year holding period.