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One year ago, you purchased a $1,000 face value bond at a yield to maturity of...

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Finance

One year ago, you purchased a $1,000 face value bond at a yieldto maturity of 9.45 percent. The bond has a 9 percent coupon andpays interest semiannually. When you purchased the bond, it had 12years left until maturity. You are selling the bond today when theyield to maturity is 8.20 percent. What is your realized yield onthis bond?

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4.0 Ratings (719 Votes)

                  K = Nx2
Bond Price =? [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =12x2
Bond Price =? [(9*1000/200)/(1 + 9.45/200)^k]     +   1000/(1 + 9.45/200)^12x2
                   k=1
Bond Price = 968.11 = PURCHASE PRICE
                  K = Nx2
Bond Price =? [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =11x2
Bond Price =? [(9*1000/200)/(1 + 8.2/200)^k]     +   1000/(1 + 8.2/200)^11x2
                   k=1
Bond Price = 1057.26 = Selling price
rate of return = ((selling price+coupon)/purchase price-1)*100

=((1057.26+90)/968.11-1)*100=18.51%
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Transcribed Image Text

One year ago, you purchased a $1,000 face value bond at a yieldto maturity of 9.45 percent. The bond has a 9 percent coupon andpays interest semiannually. When you purchased the bond, it had 12years left until maturity. You are selling the bond today when theyield to maturity is 8.20 percent. What is your realized yield onthis bond?

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