Last year, Joan purchased a $1,000 face value corporate bond with an 9% annual coupon rate...

Last year, Joan purchased a $1,000 face value corporate bond with an 9% annual coupon rate and a 25-year maturity. At the time of the purchase, it had an expected yield to maturity of 13.84%. If Joan sold the bond today for $964.28, what rate of return would she have earned for the past year? Round your answer to two decimal places.

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Expert Solution

Price of bond		=	PV of all interest payment+PV of redemption value
		=	[Coupon * PVAF (YTM,time to maturity)]+[PVF(YTM,time) *redemption value]


Price of bond when purchased

	Coupon	=	$10009%=$90
	Time	=	25
	YTM	=	14%
	Redemption value	=	$1,000
	Price	=	[$90PVAF(13.84%,25)]+[PVF(13.84%,25)$1000]
		=	[$307.4859]+[0.039141$1,000)
		=	$624.84+$39.14
		=	$ 663.98

	Return on bond	=	[(Coupon+sale price-purchase price)/purchase price]
		=	*[($90+$964.28-$663.98)/$663.98]100**
		=	*($390.3/$663.98)100**
		=	0.5878 or 58.78%

	There may be little difference due to deciml places.
	If youhave anu doubt,please ask
	Please upvote the answer

jeff jeffy answered 1 year ago

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