A bond has an annual 11 percent coupon rate, an annual interest payment of $110, a...

A bond has an annual 11 percent coupon rate, an annual interest payment of $110, a maturity of 20 years, a face value of $1,000, and makes annual payments. It has a yield to maturity of 8.83 percent. If the price is $1,200, what rate of return will an investor expect to receive during the next year?

a. -0.33%

b. 8.83%

c. 9.17%

d. 11.00%

None of the above

Expert Solution

first let us calculate value of bond 1 year from now

it is calculated using pv function in excel (calculation attached below)

value is 1196.5

current value of bond is 1200

so capital loss is (1200-1196.5) = 3.5

interest received during the year is 110 (given in problem )

return to the investor is = (interest - capital loss)/value of the bond now

= (110-3.5)/1200 = 8.83%

so return to the investor is 8.83%

jeff jeffy answered 1 year ago

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A bond has an annual 11 percent coupon rate, an annual interest payment of $110, a...

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