Additional Questions Chp 7

Additional Questions Chp 7 - Yield-to-maturity in 2 years =...

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1. The yield-to-maturity on a bond is the interest rate you earn on your investment if interest rates do not change. If you actually sell the bond before it matures, your realized return is known as the holding period yield. Suppose that today, you buy a 12 percent annual coupon bond for $1,000. The bond has 13 years to maturity. Two years from now, the yield-to-maturity has declined to 11 percent and you decide to sell. What is your holding period yield? The yield-to-maturity at the time of purchase must be 12 percent, which is the coupon rate, because the bond was purchased at par value.
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Unformatted text preview: Yield-to-maturity in 2 years = 12 percent - 1 percent = 11 percent This cannot be solved directly, so it's easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that your answer is correct. 2. Bryceton, Inc. has bonds on the market with 13 years to maturity, a yield-to-maturity of 9.2 percent, and a current price of $895.09. The bonds make semiannual payments. What is the coupon rate? Coupon rate = ($39 × 2)/$1,000 = 7.80 percent...
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This note was uploaded on 02/28/2012 for the course FIN 101 taught by Professor Chen during the Spring '12 term at CSU San Bernardino.

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Additional Questions Chp 7 - Yield-to-maturity in 2 years =...

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