Refer to Table 10 1, assume interest rates in the market (yield to maturity) are 8 percent for 20 years on a bond paying 10 percent a What is the price of the bond Answer is complete but not entirely correct Bond price 2,308 11 X b Assume 15 years have passed and interest rates in the market have gone up to 12 percent Now, using Table 10 2 for 5 years, what is the price of the bond Answer is complete but not entirely correct Bond price $ 789 26 c What would your percentage return be if you bought the bonds when interest rates in the market were 8 percent for 20 years and sold them 15 years later when interest rates were 12 percent (Do not round intermediate calculations Input your answer as a percent rounded to 2 decimal places ) Answer is complete but not entirely correct Return on investment 61 57 LOSS Table 10 1 Bond price table Yield to Maturity 2 4 6 7 8 9 (10 Interest Payment, 20 Years to Maturity) PV of PV of Coupons Principal $1,635 14 $672 97 1,359 03 456 39 1,146 99 311 80 1,059 40 258 42 981 81 214 55 912 85 178 43 851 36 148 64 796 33 124 03 746 94 103 67 702 48 86 78 662 31 72 76 592 88 51 39 486 96 26 08 395 39 11 53 10 11 12 13 14 16 20 25 IIIIIIII II II Bond Price $2,308 11 1,815 42 1,458 80 1,317 82 1,196 36 1,091 29 1,000 00 920 37 850 61 789 26 735 07 644 27 513 04 406 92 Table 10 2 Impact of time to maturity on bond prices (10 Interest Payment, Various Times to Maturity) Time Period in Bond Price with 8 Bond Price with 12 Years to Maturity Yield to Maturity Yield to Maturity 0 $1,000 00 $1,000 00 1 1,018 52 982 14 5 1,079 85 927 90 10 1,134 20 887 00 15 1,171 19 863 78 20 1,196 36 850 61 25 1,213 50 843 14 30 1,225 16 838 90

Question

Refer to Table 10 1, assume interest rates in the market (yield to maturity) are 8 percent for 20 years on a bond paying 10 percent  a  What is the price of the bond  Answer is complete but not entirely correct  Bond price 2,308 11 X b  Assume 15 years have passed and interest rates in the market have gone up to 12 percent  Now, using Table 10 2 for 5 years, what is the price of the bond  Answer is complete but not entirely correct  Bond price $ 789 26 c  What would your percentage return be if you bought the bonds when interest rates in the market were 8 percent for 20 years and sold them 15 years later when interest rates were 12 percent  (Do not round intermediate calculations  Input your answer as a percent rounded to 2 decimal places ) Answer is complete but not entirely correct  Return on investment 61 57   LOSS Table 10 1 Bond price table Yield to Maturity 2  4  6  7  8  9  (10  Interest Payment, 20 Years to Maturity) PV of PV of Coupons Principal $1,635 14   $672 97 1,359 03 456 39 1,146 99 311 80 1,059 40 258 42 981 81   214 55 912 85 178 43 851 36   148 64 796 33 124 03 746 94 103 67 702 48 86 78 662 31 72 76 592 88 51 39 486 96 26 08 395 39 11 53 10  11  12  13  14  16  20  25  IIIIIIII  II II       Bond Price $2,308 11 1,815 42 1,458 80 1,317 82 1,196 36 1,091 29 1,000 00 920 37 850 61 789 26 735 07 644 27 513 04 406 92             Table 10 2 Impact of time to maturity on bond prices (10  Interest Payment, Various Times to Maturity) Time Period in Bond Price with 8  Bond Price with 12  Years to Maturity Yield to Maturity Yield to Maturity 0 $1,000 00 $1,000 00 1 1,018 52 982 14 5 1,079 85 927 90 10 1,134 20 887 00 15 1,171 19 863 78 20 1,196 36 850 61 25 1,213 50 843 14 30 1,225 16 838 90

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Refer to Table 10-1, assume interest rates in the market (yield to maturity) are 8 percent for 20 years on a bond paying 10 percent.

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