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

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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 7percent for $1,020. The bond has 16 years to maturity. What rate ofreturn do you expect to earn on your investment? (Do notround intermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)
b-1.
Two years from now, the YTM on your bond has declined by 1percent and you decide to sell. What price will your bond sell for?(Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.)
b-2. What is the HPY on your investment? (Do not roundintermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)
a. Expected rate of return %
b-1. Bond price
b-2. HPY

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3.6 Ratings (487 Votes)

a YTM Coupon F Pn F P2 Here F Face value 1000 assumed P Price 1020 Coupon Face value Rate Coupon 1000 7 70 n years 16 years Now YTM 70 See Answer

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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 7percent for $1,020. The bond has 16 years to maturity. What rate ofreturn do you expect to earn on your investment? (Do notround intermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)b-1.Two years from now, the YTM on your bond has declined by 1percent and you decide to sell. What price will your bond sell for?(Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.)b-2.What is the HPY on your investment? (Do not roundintermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)a.Expected rate of return%b-1.Bond priceb-2.HPY