Question
In: Finance
What is the rate of return as of July 2001 for bond with face value of...
What is the rate of return as of July 2001 for bond with face value of $100 coupon rate of 6.75%, issued on 7/15/96, maturity of 7/15/21 and current price of $95.60?
Solutions
Expert Solution
Rate of Return is the rate at which Present value of cash flows are equal to Bond Price.
Rate of Return:
Rate of Return = Rate at which least +ve NPV + [ Npv at that rate / change in NPV due to 1% inc in rate ] * 1%
= 7% + [ 1.75/ (1.75 + 7.87 ) ] * 1%
= 7% + [ 1.75 / 9.62 ] * 1%
= 7% + 0.18%
= 7.18%
Rate of return from Bond is 7.18%
jeff jeffy answered 1 year agoRelated Solutions
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