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Last year Janet purchased a $1,000 face value corporate bond with a 12% annual coupon rate...

Last year Janet purchased a $1,000 face value corporate bond with a 12% annual coupon rate and a 30-year maturity. At the time of the purchase, it had an expected yield to maturity of 12.32%. If Janet sold the bond today for $920.86, what rate of return would she have earned for the past year? Do not round intermediate calculations. Round your answer to two decimal places..

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Expert Solution

Computation Of Bond Price at the time of purchased
a Annual Coupon Amount $     120.00
b Present Value Annuity Factor for (30 Years,12.32%) 7.868183
c Present Value Of Annual Interest (a*b) $     944.18
d Redemption Value $ 1,000.00
e Present Value Of (30 Years,12.32%) 0.03064
g Present Value Of Redemption Amount (d*e) $       30.64
f Bond price(c+g) $     974.82
Rate of return = (sale price - purchase price + dividend income)/ purchase price
=($920.86-974.82 +$120)/974.82
=66.04/974.82
=6.77%

jeff jeffy answered 2 years ago
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