Question
The plain vanilla bond A has a nominal value of EUR 1000, 10 years maturity, pays a coupon rate of 8.26% due annually and has
The plain vanilla bond A has a nominal value of EUR 1000, 10 years maturity, pays a coupon rate of 8.26% due annually and has a yield to maturity of 9%. An investor, with an investment time horizon of 7 years, bought it with the aim to obtain a rate of return equal to that yield. However, immediately after its purchase, interest rates increased 10 basis points, having continued so until the end of that investment time horizon. Considering these conditions, answer the following questions:
a) At what price did the investor buy the bond?
b) At the end of the investment time horizon, what was the market price of that bond?
c) What is the total interest from coupons obtained during the period?
d) Calculate the receipts obtained by the investor at the end of his/her investment time horizon.
Step by Step Solution
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Step: 1
To calculate the price at which the investor bought the bond we can use the present value formula PV ...Get Instant Access to Expert-Tailored Solutions
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Fundamentals Of Investments Valuation And Management
Authors: Bradford Jordan, Thomas Miller, Steve Dolvin
10th Edition
1266824014, 9781266824012
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