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Suppose that at time 0 you buy a 6%-coupon 30-year bond priced at par, and at time 6% bond 0.5 you sell this bond at
| Suppose that at time 0 you buy a 6%-coupon 30-year bond priced at par, and at time | 6% bond | |||||||
| 0.5 you sell this bond at a price of 90% of par value. | Par | $1.00 | ||||||
| Coupon | 6.00% | |||||||
| a) What is your time 0.5 payoff per $1 of initial investment? | Maturity | 30 | ||||||
| $0.93 | Time of sale | 0.5 | ||||||
| Sale price | 90% | |||||||
| Sell bond immediately after coupon payment: | ||||||||
| payoff = coupon + sale proceeds = coupon + ex-coupon bond price | ||||||||
| payoff = 0.06/2 + 0.90 = 0.93 | ||||||||
| b) What is the rate of return on your investment (annualized, with semi-annual | ||||||||
| compounding)? | ||||||||
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Local Public Finance
Authors: René Geissler, Gerhard Hammerschmid, Christian Raffer
1st Edition
3030674681, 978-3030674687
