Question

In: Finance

Suppose that you have just paid $1,000 for a 10% coupon bond that matures in 5...

Suppose that you have just paid $1,000 for a 10% coupon bond that matures in 5 years. The face value of the bond is $1,000. You expect that in 1 year you will be able to sell the bond for $1,100. What is the expected rate of return of this investment?

A) 0%

B) 10%

C) more than 10%

D) not enough information to answer the question

Solutions

Expert Solution

% return on sale= (1100-1000)/1000=100/1000=10%

Since there is also a coupon payment of 10% hence total return is more than 10%

Option c is correct


Related Solutions

A 7 3/5% bond matures in 10 years. Assuming the coupon is paid annually and the...
A 7 3/5% bond matures in 10 years. Assuming the coupon is paid annually and the par value is $1,000, what is the value of this bond to an investor requiring a 9% rate of return? A) $895.71 B) $954.05 C) $910.15 D) $848.83
The $1,000 face value EFG bond has a coupon of 10% (paid semi-annually), matures in 4...
The $1,000 face value EFG bond has a coupon of 10% (paid semi-annually), matures in 4 years, and has current price of $1,140. What is the EFG bond's yield to maturity?
1. A issued an unsecured bond with a 10% coupon rate paid semiannually. The bond matures...
1. A issued an unsecured bond with a 10% coupon rate paid semiannually. The bond matures in 8 years, has a par value of $1,000, and a yield to maturity of 8.5%. Based on this information, what is the price of this bond? 2. B issued a bond that will mature in 10 years. The bond has a face value of $1,000 and a coupon rate of 8%, paid semiannually. The bond is currently trading at $1,100, and is callable...
A 5-year bond with face value $1,000 (paid at maturity) and coupon rate 5% (coupon paid...
A 5-year bond with face value $1,000 (paid at maturity) and coupon rate 5% (coupon paid in arrears annually) has yield-to-maturity 4.5%. What is the convexity of the bond?
A bond offers an annual coupon rate of 5%, with interest paid semiannually. The bond matures...
A bond offers an annual coupon rate of 5%, with interest paid semiannually. The bond matures in seven years. The price of this bond per 100 of par value is 112.54, what is its yield-to-maturity?
Suppose that you purchase a $1,000 zero-coupon bond that matures 3 years from now and is...
Suppose that you purchase a $1,000 zero-coupon bond that matures 3 years from now and is priced to yield 4.5%., Assume interest is compounded semi-annually. a. How much will you pay for the bond with exactly 3 years to maturity? b. One year later, if interest rates remain the same, what will be the price of the bond? c. If you paid $850 for the bond with 3 years to maturity, and held it until maturity, what will be your...
a bond matures in Feb, 2020. it has a face value at $1,000. a 10% coupon...
a bond matures in Feb, 2020. it has a face value at $1,000. a 10% coupon paid semi-annually, and a required return of 12% per year. (compounded semi-annually). At what price should the bond sell today. (Use financial calculator in details, and simple solution)
A $1,000 bond with a coupon rate of 5% paid semi-annually has 10 years to maturity...
A $1,000 bond with a coupon rate of 5% paid semi-annually has 10 years to maturity and a yield to maturity of 7%. The price of the bond is closest to $________. Input your answer without the $ sign and round your answer to two decimal places.
Suppose that you just bought a​ four-year ​$1,000 coupon bond with a coupon rate of 6.5%...
Suppose that you just bought a​ four-year ​$1,000 coupon bond with a coupon rate of 6.5% when the market interest rate is 6.5%. One year​ later, the market interest rate falls to 4.5%. The rate of return earned on the bond during the year was %. ​(Round your response to two decimal​ places.)
A6-5. Suppose a $1000 bond pays annual “coupon interest” equal to 10% and matures in two...
A6-5. Suppose a $1000 bond pays annual “coupon interest” equal to 10% and matures in two years. If the yield on bonds with similar risk characteristics is 3%, the price of this bond today is greater than $1000. A6-6. Suppose the Bank of Canada (BOC) buys $10B worth of bonds from the Canadian banking system that operates with a desired reserve ratio of 5%. Immediately after the transaction, the balance sheet of the BOC expands by $10B, while balance sheet...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT