FBE441_Homework_5_solutions

FBE441_Homework_5_solutions - USC - MARSHALL SCHOOL OF...

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USC - MARSHALL SCHOOL OF BUSINESS FBE 441 Investments – P. Matos – Spring 2010 Homework Assignment #5 – Solutions 1. A coupon bond pays interest of $100 annually has a face value of $1,000, matures in 5 years, and is selling today at $928 (at a discount from “par value”). What is the yield to maturity on this bond? SOLUTION : FV = 1000, PMT = 100, n = 5, PV = -928, i = 11.997% 2. You purchased an annual interest coupon bond one year ago that had 6 years remaining to maturity at that time. The coupon interest rate was 10% and the par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. If, one year later, you sold the bond after receiving the first interest payment and the yield to maturity continued to be 8%, what would your annual total rate of return on holding the bond be for that year? Explain. SOLUTION : FV = 1000, PMT = 100, n = 6, i = 8, PV = 1092.46; FV = 1000, PMT = 100, n = 5, i = 8, PV = 1079.85; Holding Period return HPR = (1079.85 - 1092.46 + 100) / 1092.46 = 8%
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This note was uploaded on 04/22/2011 for the course FBE 441 taught by Professor Callahan during the Spring '07 term at USC.

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FBE441_Homework_5_solutions - USC - MARSHALL SCHOOL OF...

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