An investor is considering the purchase of a 20-year 7% coupon bond selling for $816 and a par value of $1,000. The yield to maturity for this bond is 9%. Assume the investor’s horizon is 15 years. Market participants expect the yield rate for comparable issues to be 10% for the first 10 years and 6% for years 11 to 20.
1. What is the projected sale price at the end of five years?
2. What is total coupon payments plus the interest on interest at the end of five years? Note, there are two different yield rates for this period.
3. What is the ANNUALIZED total return in percentage?
1. Projected Sale Price at the end of Five years= $ 1067.612
Particulars | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 | Year 11 | Year 12 | Year 13 | Year 14 | Year 15 | Year 16 | Year 17 | Year 18 | Year 19 | Year 20 |
Cash Inflow | 70 | 70 | 70 | 70 | 70 | 70 | 70 | 70 | 70 | 70 | 70 | 70 | 70 | 70 | 1070 |
Discounting rate | 1.1 | 1.21 | 1.331 | 1.4641 | 1.61051 | 1.418519 | 1.50363 | 1.593848 | 1.689479 | 1.790848 | 1.898299 | 2.012196 | 2.132928 | 2.260904 | 2.396558 |
Discounted Cash Inflows | 63.63636 | 57.85124 | 52.59204 | 47.81094 | 43.46449 | 49.34724 | 46.554 | 43.91887 | 41.43289 | 39.08763 | 36.87513 | 34.78786 | 32.81873 | 30.96107 | 446.4736 |
Total | 1067.612 |
total coupon payments plus the interest on interest at the end of five years
Particulars | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
Coupon Payments | 70 | 70 | 70 | 70 | 70 |
Interest earned @9% | 6.3 | 13.167 | 20.65203 | 28.81071 | |
Total | 419 |
An investor is considering the purchase of a 20-year 7% coupon bond selling for $816 and...
An investor is considering the purchase of a 20-year 7% coupon bond selling for $816 and a par value of $1,000. The yield to maturity for this bond is 9%. Assume the investor’s horizon is 15 years. Market participants expect the yield rate for comparable issues to be 10% for the first 10 years and 6% for years 11 to 20. 1. What is the projected sale price at the end of 15 years? 2. What is total coupon payments...
(4) An investor is considering the purchase of a 20-year 7% coupon bond selling for $816 and a par value of $1,000. The yield to maturity for this bond is 9%. How much must the interest on interest be?
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