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Table 10-2 Impact of time to maturity on bond prices (10% Interest Payment, Various Times to Maturity) Time Period in Bond Price with 8% Bond Price with 12% Years to Maturity Yield to Maturity Yield to Maturity 0 $1,000.00 $1,000.00 1 1,018.52 982.14 5 1,079.85 927.90 10 1,134.20 887.00 15 1,171.19 863.78 20 1,196.36 850.61 25 1,213.50 843.14 30 1,225.16 838.90 Table 10-1 Bond price table Yield to Maturity + 2% 4% 6% 7% 8% 9% (10% Interest Payment, 20 Years to Maturity) PV of PV of Coupons Principal $1,635.14 $672.97 1,359.03 456.39 1,146.99 311.80 1,059.40 258.42 981.81 214.55 912.85 178.43 851.36 148.64 796.33 124.03 746.94 103.67 702.48 86.78 662.31 72.76 592.88 51.39 486.96 26.08 395.39 11.53 10% IIIIIIIIIIIIIIIIIIIIIIIIIIII Bond Price $2,308.11 1,815.42 1,458.80 1,317.82 1,196.36 1,091.29 1,000.00 920.37 850.61 789.26 735.07 644.27 513.04 406.92 11% + + + + + + + + + 12% 13% 14% 16% 20% 25% Refer to Table 10-1, assume interest rates in the market (yield to maturity) are 4 percent for 20 years on a bond paying 10 percent. a. What is the price of the bond? Bond price b. Assume 5 years have passed and interest rates in the market have gone up to 12 percent. Now, using Table 10-2 for 15 years, what is the price of the bond? Bond price c. What would your percentage return be if you bought the bonds when interest rates in the market were 4 percent for 20 years and sold them 5 years later when interest rates were 12 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Return on investment %

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