You purchased a 5-year annual-interest coupon bond 1 year ago. Its coupon interest rate was 6%, and its par value was $1,000. At the time you purchased the bond, the yield to maturity was 4%. If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 3%, your annual total rate of return on holding the bond for that year would have been approximately ________.

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Quizplus · Accepted Answer

PV₀ = 60 11eaaae8_8b5b_43ab_a4b8_1bcc11b3f633_TB6474_11 + 11eaaae8_8b5b_43ac_a4b8_f79417fc515b_TB6474_11 ; PV₀ = $1,089.04 PV₁ = 60 11eaaae8_8b5b_43ad_a4b8_0b1591c5f4de_TB6474_11 + 11eaaae8_8b5b_6abe_a4b8_d9fe6c5c619d_TB6474_11 ; PV₁= $1,111.51 Calculator entries for purchase price are N = 5, I/Y = 4, PMT = 60, FV = 1,000, CPT PV → 1,089.04 Calculator entries for ending price are N = 4, I/Y = 3, PMT = 60, FV = 1,000, CPT PV → 1,111.51 Total ending cash = 1,111.51 + 60 = 1,171.51 HPR= (1,171.51/1,089.04) − 1 = 7.57%

You Purchased a 5-Year Annual-Interest Coupon Bond 1 Year Ago