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Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity)
Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decline from 9 percent to 8 percent.
Table 10-1 Bond price table
(10% Interest Payment, 20 Years to Maturity) | |||||
---|---|---|---|---|---|
Yield to Maturity | PV of Coupons | PV of Principal | Bond Price | ||
2% | $ 1,635.14 | + | $ 672.97 | = | $ 2,308.11 |
4% | 1,359.03 | + | 456.39 | = | 1,815.42 |
6% | 1,146.99 | + | 311.80 | = | 1,458.80 |
7% | 1,059.40 | + | 258.42 | = | 1,317.82 |
8% | 981.81 | + | 214.55 | = | 1,196.36 |
9% | 912.85 | + | 178.43 | = | 1,091.29 |
10% | 851.36 | + | 148.64 | = | 1,000.00 |
11% | 796.33 | + | 124.03 | = | 920.37 |
12% | 746.94 | + | 103.67 | = | 850.61 |
13% | 702.48 | + | 86.78 | = | 789.26 |
14% | 662.31 | + | 72.76 | = | 735.07 |
16% | 592.88 | + | 51.39 | = | 644.27 |
20% | 486.96 | + | 26.08 | = | 513.04 |
25% | 395.39 | + | 11.53 | = | 406.92 |
What is the bond price at 9 percent?
What is the bond price at 8 percent?
What would be your percentage return on investment if you bought when rates were 9 percent and sold when rates were 8 percent?
Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.
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