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H4 - 2 The yield to maturity on a 3 year 8.55 annual coupon...

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S CHOOL OF B USINESS A DMINISTRATION U NIVERSITY OF C ALIFORNIA AT R IVERSIDE B US 106 A VINASH V ERMA H OMEWORK 4 D UE A PRIL 27, 2011 1. The yield to maturity on a 27 year 8.55% annual coupon bond is 16.2% per year. (i). Work out the price of the bond assuming that its face value is $100. (ii). Express the price of the bond using the market convention in dollars and thirty- seconds of a dollar. (iii). Work out W 27 , the value of your investment at t=27 assuming that your investment grows at 16.2% per year. (iv). Work out the profit you made over the 27 years that you held the bond. (v). Work out the dollar amount of capital gains, and the percentage of the profit that they represent. (vi). Work out the dollar amount of coupons, and the percentage of the profit that they represent. (vii). Work out the dollar amount of reinvestment income, and the percentage of the profit that it represents.
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Unformatted text preview: 2. The yield to maturity on a 3 year 8.55% annual coupon bond is 16.2% per year. (i). Work out the price of the bond assuming that its face value is $100. (ii). Express the price of the bond using the market convention in dollars and thirty-seconds of a dollar. (iii). Work out W 3 , the value of your investment at t=3 assuming that your investment grows at 16.2% per year. (iv). Work out the profit you made over the 3 years that you held the bond. (v). Work out the dollar amount of capital gains, and the percentage of the profit that they represent. (vi). Work out the dollar amount of coupons, and the percentage of the profit that they represent. (vii). Work out the dollar amount of reinvestment income, and the percentage of the profit that it represents....
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