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uppose you buy a bond with a coupon of 8.8 percent today for $1,090. The bond...

uppose you buy a bond with a coupon of 8.8 percent today for $1,090. The bond has 10 years to maturity. Assume interest payments are reinvested at the original YTM. a. What rate of return do you expect to earn on your investment? Item 8 10 points Return to question Item 8 Item 8 10 points Suppose you buy a bond with a coupon of 8.8 percent today for $1,090. The bond has 10 years to maturity. Assume interest payments are reinvested at the original YTM. a. What rate of return do you expect to earn on your investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. What price will your bond sell for?

Solutions

Expert Solution

Price of Bond = Coupon1/(1+YTM)1 + Coupon2/(1+YTM)2 + ..... + (Couponn + Face Value)/(1+YTM)n

1) Rate of Returned to be earned on the investment = YTM = 7.49%

2) Price of the bond after 2 years (YTM has increased by 2%) = $962.52

jeff jeffy answered 2 years ago
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