Last year Janet purchased a $1,000 face value corporate bond with a 7% annual coupon rate...

Last year Janet purchased a $1,000 face value corporate bond with a 7% annual coupon rate and a 15-year maturity. At the time of the purchase, it had an expected yield to maturity of 7.04%. If Janet sold the bond today for $1,004.41, what rate of return would she have earned for the past year? Do not round intermediate calculations. Round your answer to two decimal places.

Expert Solution

We need to compute the purchase price.

M = $1000, n = 15, C = 7% *$ 1000 = $70, i = 7.04%

P = $635.95 + $360.42

P = $996.37

Return Earned = (Sale Price - Purchase Price + Coupon)/Purchase Price

Return Earned = ($1,004.41 - $996.37 + $70)/$996.37 = 7.83%

jeff jeffy answered 2 years ago

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Last year Janet purchased a $1,000 face value corporate bond with a 7% annual coupon rate...

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