Question
You are considering the purchase of a 15 year bond with annual coupon of 9.5%. The bond has a face value of $1000 and makes
You are considering the purchase of a 15 year bond with annual coupon of 9.5%. The bond has a face value of $1000 and makes annual interest payments. If you require an 11% yield on this investment:
What is the max price you are willing to pay for the bond?
Your total wealth at the end of 15 years if you purchased this bond will be? And how much did you earn in additional interest if you reinvested each coupon payment of $95 at 11% for the entire 15 years? Show work in the space below.
Verify that your realized yield at the end of 15 years is the same as the bonds yield to maturity of 11%. What are the key risks in bond investments?
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