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Assume you purchase (at par) one 11-year bond with a 6.05 percent coupon and a $1,000...

Assume you purchase (at par) one 11-year bond with a 6.05 percent coupon and a $1,000 face value. Suppose you are only able to reinvest the coupons at a rate of 4.05 percent. If you sell the bond after 6 years when the yield to maturity is 7.05 percent, what is your realized yield? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

FV

Selling Price

Realized Yield %

Solutions

Expert Solution

Here, coupon payment frequency is not given

Case 1: Annual coupons
Selling Pricce=PV(7.05%,5,-6.05%*1000,-1000)=959.05286

Realized Yield=RATE(6,0,-1000,PV(7.05%,5,-6.05%*1000,-1000)+FV(4.05%,6,-6.05%*1000))=5.2693%

Case 2: Semiannual coupons
Selling Pricce=PV(7.05%/2,5*2,-6.05%*1000/2,-1000)=958.46932

Realized Yield=RATE(6,0,-1000,PV(7.05%/2,5*2,-6.05%*1000/2,-1000)+FV(4.05%/2,6*2,-6.05%*1000/2))=5.3196%

jeff jeffy answered 2 years ago
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