Question

Last year Janet purchased a $1,000 face value corporate bond with an 11% annual coupon rate and a 30-year maturity. At the time of the purchase, it had an expected yield to maturity of 13.84%. If Janet sold the bond today for $925.66, what rate of return would she have earned for the past year? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Price Last Year = PV of future CFs from it.

Year	CF	PVF @13.84%	Disc CF
1	$    110.00	0.8784	$   96.63
2	$    110.00	0.7716	$   84.88
3	$    110.00	0.6778	$   74.56
4	$    110.00	0.5954	$   65.50
5	$    110.00	0.5230	$   57.53
6	$    110.00	0.4594	$   50.54
7	$    110.00	0.4036	$   44.39
8	$    110.00	0.3545	$   39.00
9	$    110.00	0.3114	$   34.26
10	$    110.00	0.2736	$   30.09
11	$    110.00	0.2403	$   26.43
12	$    110.00	0.2111	$   23.22
13	$    110.00	0.1854	$   20.40
14	$    110.00	0.1629	$   17.92
15	$    110.00	0.1431	$   15.74
16	$    110.00	0.1257	$   13.83
17	$    110.00	0.1104	$   12.14
18	$    110.00	0.0970	$   10.67
19	$    110.00	0.0852	$      9.37
20	$    110.00	0.0748	$      8.23
21	$    110.00	0.0657	$      7.23
22	$    110.00	0.0577	$      6.35
23	$    110.00	0.0507	$      5.58
24	$    110.00	0.0446	$      4.90
25	$    110.00	0.0391	$      4.31
26	$    110.00	0.0344	$      3.78
27	$    110.00	0.0302	$      3.32
28	$    110.00	0.0265	$      2.92
29	$    110.00	0.0233	$      2.56
30	$    110.00	0.0205	$      2.25
30	$ 1,000.00	0.0205	$   20.47
Price Last Year			$ 799.00

Rate of Ret = [ [ P1 - P0 ] + Coupon ] / P0

P1 = Price Today

P0 = Price last Year

Rate of Ret = [ [ P1 - P0 ] + Coupon ] / P0

= [ [ 925.66 - 799] + 110 ] / 799

= [ [ 126.66] + 110 ] / 799

= [ 236.66] / 799

= 0.2962 i.e 29.62%