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

Solutions

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

Next > < Previous

Related Solutions

A $1,000 par value bond has a coupon interest rate of 6 percent. The interest payment...

A $1,000 par value bond has a coupon interest rate of 6 percent. The interest payment is ? a. $160 b. $6 c. need to know the maturity date d. $60

Preston Corporation has a bond outstanding with an annual interest payment of $110, a market price...

Preston Corporation has a bond outstanding with an annual interest payment of $110, a market price of $1,320, and a maturity date in 8 years. Assume the par value of the bond is $1,000. Find the following: (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) a. Coupon rate b....

(Bond valuation) Bellingham bonds have an annual coupon rate of 11 percent and a par value...

(Bond valuation) Bellingham bonds have an annual coupon rate of 11 percent and a par value of $ 1 comma 000 and will mature in 20 years. If you require a return of 12 percent, what price would you be willing to pay for the bond? What happens if you pay more for the bond? What happens if you pay less for the bond? a. The price you would be willing to pay for the bond is -----?

11- ABC's has an outstanding bond with a coupon rate of 8 percent that matures in...

11- ABC's has an outstanding bond with a coupon rate of 8 percent that matures in 12 years. The bond pays interest annually. If the face value of the bond is $1,000 face value and the yield to maturity is 6 percent, find the following "Show your formula and calculations": Is this bond issued at discount, premium, or at par? Why? What is the value of the bond at the date of issuance? (you may use your financial calculator) What...

Bond P is a premium bond with a coupon rate of 11 percent. Bond D is...

Bond P is a premium bond with a coupon rate of 11 percent. Bond D is a discount bond with a coupon rate of 5 percent. Both bonds make annual payments, have a YTM of 8 percent, and have five years to maturity. Requirement 1: What is the current yield for bond P? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Current yield % Requirement 2: What is the current yield...

A semiannual payment bond with a $1,000 par has a 7 percent quoted coupon rate, a...

A semiannual payment bond with a $1,000 par has a 7 percent quoted coupon rate, a 7 percent promised YTM, and 10 years to maturity. Find the bond's duration.

A semiannual payment bond with a $1,000 par has a 7 percent quoted coupon rate, a...

A semiannual payment bond with a $1,000 par has a 7 percent quoted coupon rate, a 7 percent promised YTM, and 10 years to maturity. Find the bond's duration. please show in excel

A bond has annual coupon rate of 7%, with interest paid semiannually. The bond matures in...

A bond has annual coupon rate of 7%, with interest paid semiannually. The bond matures in seven years. At a market discount rate of 5%, the price of this bond per 100 of par value is closest to: Round your answer to 2 decimal places.

1) A 25-year, $1,000 par value bond has an 8.5 percent annual payment coupon. The bond...

1) A 25-year, $1,000 par value bond has an 8.5 percent annual payment coupon. The bond currently sells at a discount (for $925 exactly). If the YTM doesn't change from its current level, what will the price be five years from now? a) $930.11 b) $884.19 c) $977.20 d) $953.36 2) GE's balance sheet as of today is as follows: Long-term debt (bonds, at par) $23,500,000 Preferred stock 2,000,000 Common stock ($10 par) 10,000,000 Retained earnings 4,000,000 Total debt and...

Bond J has a coupon rate of 4 percent. Bond Shad coupon rate of 14 percent.

Interest Rate Risk. Bond J has a coupon rate of 4 percent. Bond Shad coupon rate of 14 percent. Both bonds have 13 years to maturity, make semiannual payments, a par value of $1,000, and have a YTM of 8 per interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower-coupon bonds?

Subjects