Question

you have purchased a 5-year 6% bond while is yield to maturity was a percent. 2 years later you sold the bond while it’s yield is 10%. what is your annual holding. During this two year period

1014.52 1025.12 Question 12 (10 points) You have purchased a 5-year, 6 percent bond while it is yield to maturity was 8 percent. 2 years later you sold the bond while its yield is 10 percent. What is your annual holding period return during this 2-year period? 5.483 % 10.87% 1.42% 4.388 % Question 13 (4 points) Saved Which of the following is not correct about a callable bond?

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

mm Answer The correct answer is 5.483 % e Calculation Lets assume the face value of the bond = $ 100 5 Issue price of the bond 5 = annual interest * present value annuity + (face value /(1+1)^n) - =((100*6%)*((1-(1.08)^-5)/.08) + (100/(1.08)^5) B =( 6*3.99271) + 68.058 = $ 92.01 Interest received in first year = face value * bond interest rate = 100*6% =$6 Interest received in second year = face value * bond interest rate 5 = 100*6% =$ 6

59 Selling price of the bond 60 = annual interest * present value annuity + (face value/(1+i)n) 61 =((100*6%)*((1-(1.1)^-3)/.1) + (100/(1.1)^3) 62 = (6*2.48685)+ 75.1314 63 = $ 90.05 64 65 Let annual holding rate of return = Y% 66 Investment = (First year interest/(1+Y%))+((second year interest + sale price)/(1+Y%^2)) 67 92.01 = (6/(1+Y%))+(6+90.05)/(1+Y%)^2) 68 by the above equation 69 Y = 5.483% 70