You purchase a 20 year bond today with a $10,000 face value that makes annual coupon payments at a 5 coupon rate (a) If the yield to maturity on 20 year bonds at the time of purchase was 4 , how much did you pay for the 20 year bond (b) After holding the bond for 1 year, you find that the yield to ...

Bond price Present value PV of all coupon payments PV of matur ...

You purchase a 20-year bond today with a $10,000 face value that makes annual coupon payments at

Question:

You purchase a 20-year bond today with a $10,000 that makes annual payments at a 5% rate.
(a) If the yield to on 20 year bonds at the time of purchase was 4%, how much did you pay for the 20 year bond?
(b) After holding the bond for 1 year, you find that the yield to on 19 year bonds is 5%. What is new price of your bond and what has been the rate of return from holding the bond over the first year?
(c) After holding the bond for a second year, you find that the yield to on 18 year bonds is 3.5%. What is new price of your bond and what has been the rate of return from holding the bond from the first year to the second?
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...