Reference no: EM132516361
Kindly, confirm my answers if they are correct or not. You purchased an annual interest coupon bond one year ago with six years remaining to maturity at the time of purchase. The coupon interest rate is 9% and par value is $1,000. At the time you purchased the bond, the yield to maturity was 8%. If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 7%,
A. What is the value of the bond when you purchased it?
FV = 1000, PMT = 90, n = 7, i = 8, PV = 1052.06
B. What is the value of the bond when you sold it?
PV = 1052.06, PMT = 90, n = 7, i = 8, FV= 2606.10
C. What is your annual total rate of return (HPR) on holding the bond for that year?
FV = 1000, PMT = 90, n = 6, i = 8, PV = 1046.23;
FV = 1000, PMT = 90, n = 5, i = 7, PV = 1082;
HPR = (1082- 1046.23+ 90) / 1046.23= -5.18%
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