If the current price of a 12-year 3.5% coupon bond which pays semiannually is $82.60, what...

If the current price of a 12-year 3.5% coupon bond which pays semiannually is $82.60, what is its yield to maturity? If you purchased this bond, held it for two years and the yield to maturity rose to 6.5% at what would its new price be? If you then sold the bond what effective rate of return would you have earned on this two-year investment?

Expert Solution

1.
=RATE(12*2,3.5%*100/2,-82.6,100)*2=5.49989721749246%

2.
=PV(6.5%/2,10*2,-3.5%*100/2,-100)=78.1909807795987

3.
=(1+RATE(2*2,3.5%*100,-82.6,PV(6.5%/2,10*2,-3.5%*100/2,-100)))^2-1=6.00897800615341%

jeff jeffy answered 2 years ago

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