Question

Problem 7-27 (similar to) Question Help (Bondholders' expected rate of return) You purchased a bond for $900. The bond has a coupon rate of 12 percent, which is paid semiannually. It matures in 16 years and has a par value of $1,000. What is your expected rate of return? Ved at du og Doddi

Answer 1

Page © e New Link Date Page in Purchase Price = $ 900 Coupon Rate : 121. per annum Cice. 67. semi-annual) Life - 15 years Par Value = $ 1.000 Expected Rate of Return = ? LO4r145 16 ur $ 900 $60 $60 $1,000 (Redemption) we know, Bo - SA x PVIFA (RR ) + RVxPvIfCRR,n) where, 80= Bond price at o year SAI Annual Interest RR - Rate of Return n. no. of period Rus Redeemable value .e. $900 = [ $ 60% PvIFA (RR, B] + [ $1.000 x PVIACRR, Assume R =64 Present Value of inflows = ($60 x PVIFA ( 67,3291+{ $1.000x PvIF( 609,82)) = $60 X 14.0840+ $1.000 X 0.1549 = $ 845.04 + $154.9 = $ 999.94 Assume R-7). Present Value of inflows - $ 60% PVIFA (77,32)]+($1.000 XPVIF(24.22 - $ 60X12.6465+ $1.000 X 0.1147 $ 758.79 + 114.7 = $ 873.49

Page ① Using Interpolation ķ R=6% R = ? R: 7.1. Price ggg.ga goo 873.49 99.94 126.45 @ 7!). $ 126.45 $ 99.94 - - 99.94 = 0.79 126.45 .. Expected Rate of Return = 6.794.