The YTM on a bond is the interest rate you earn on your investment if interest...

80.2K

Verified Solution

Question

Finance

The YTM on a bond is the interest rate you earn on yourinvestment if interest rates don’t change. If you actually sell thebond before it matures, your realized return is known as theholding period yield (HPY).
a.
Suppose that today you buy a bond with an annual coupon of 8percent for $1,170. The bond has 16 years to maturity. What rate ofreturn do you expect to earn on your investment? Assume a par valueof $1,000. (Do not round intermediate calculations. Enteryour answer as a percent rounded to 2 decimal places, e.g.,32.16.)
  Expected rate ofreturn ???? %
b1.
Two years from now, the YTM on your bond has declined by 1percent, and you decide to sell. What price will your bond sellfor? (Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.)
  Bond price ??? $
b2. What is the HPY on yourinvestment? (Do not round intermediate calculations. Enteryour answer as a percent rounded to 2 decimal places, e.g.,32.16.)
  HPY ??? %

Answer & Explanation Solved by verified expert

3.8 Ratings (427 Votes)

Yield to maturity is the rate of return the investor will get if heshe hold the bold till maturity period So YTM is like internal rate of return if we discount all the cash inflow from the bond using YTM the present value will be equal to the bond current price YTM is calculated using See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

The YTM on a bond is the interest rate you earn on yourinvestment if interest rates don’t change. If you actually sell thebond before it matures, your realized return is known as theholding period yield (HPY).a.Suppose that today you buy a bond with an annual coupon of 8percent for $1,170. The bond has 16 years to maturity. What rate ofreturn do you expect to earn on your investment? Assume a par valueof $1,000. (Do not round intermediate calculations. Enteryour answer as a percent rounded to 2 decimal places, e.g.,32.16.) Expected rate ofreturn ????%b1.Two years from now, the YTM on your bond has declined by 1percent, and you decide to sell. What price will your bond sellfor? (Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.) Bond price ???$ b2.What is the HPY on yourinvestment? (Do not round intermediate calculations. Enteryour answer as a percent rounded to 2 decimal places, e.g.,32.16.) HPY ???%