Christy bought an 7% bond price at 95% of par that has 10 years until it...
Christy bought an 7% bond price at 95% of par that has 10 years until it matures. 1 year later the yield to maturity on this bond is 6.9%. What return did Christy earn on this bond? options: 18.46% 11.67% 12.49% 14.18% 13.32%
Homework Answers
| price of bond after a year | coupon payment*PVAF at 6.9%)+(face value*PVF at 6.9%) | (70*6.54303)+(1000*0.54853) | $1,006.54 |
| PVAF at 6.9% | 1-(1+r)^-n/r | 1-(1.069)^-9 /6.9% | 6.54303 |
| PVF at 6.9% | 1/1(1+r)^n | 1/(1.069)^9 | 0.54853 |
| purchase price | 950 | ||
| rate of return on bond over a 1 year period | (coupon payment+ capital gain)/purchase price | (70+(1006.54-950))/950 | 13.32% |
| Option is 4 |
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Christy bought an 7% bond price at 95% of par that has 10 years
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