Question

If you buy a bond with 8 years remaining to maturity and sell it a year later, what will your rate of return be if the Yield to maturity at the time you buy the bond is 6.5% and 7.0% when you sell it. The bond pays a coupon rate of 5%.

Answer 1

7 8 1,000 5% 1 50 10 8 A A Par value (FV) B Coupon rate C Number of compounding periods per year D = AxB/C Interest per period (PMT) FlNumber of E Number of years to maturity Number of compounding periods till F= CxE maturity (NPER) Market rate of return/Required rate of Greturn Market rate of return/Required rate of G/Creturn per period (RATE) Bond purchase price 11 8 12 6.5% 14 6.5% PV(RATE,NPER,PMT,FV)*-1|| Bond purchase price 908.67 =PV(6.5%,8,50,1000)*-1

6 1,000 5% 1 50 A B A Par value (FV) B Coupon rate C Number of compounding periods per year D = AxB/C Interest per period (PMT) E Number of years to maturity Number of compounding periods till F = CxE maturity (NPER) Market rate of return/Required rate of G return Market rate of return/Required rate of G/C return per period (RATE) | Bond sale price 7% PV(RATE,NPER,PMT,FV)*-1/ 15 Bond sale price 892.21 =PV(7%,7,50,1000)*-1 Rate of return 3.69% =(892.21+50-908.67)/908.67

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