Question

What is the initial rate of return for this bond?  %.
In year 5 the bond sells for $500. Calculate the current yield of return.  %._________

In year 6 the bond sells for $700. Calculate the current yield of return.  %. _________

In year 7 the bond sells for $900. Calculate the current yield of return.  %.__________

Please state answers to two decimal points.  DO NOT use % in your answer, it is already stated

IPA 1 125 $1000 $50 $50 $50 $50 $50 $50 $50 $50 $50 $50 | 1 2 3 4 5 6 7 8 9 10 <$1000> • What is the initial rate of return for this bond? 5 • In year 5 the bond sells for $500. Calculate the current yield of return. 10 • In year 6 the bond sells for $700. Calculate the current yield of return. 7.14 • In year 7 the bond sells for $900. Calculate the current yield of return. 5.55 我图(Alf Please state answers to two decimal points. DO NOT use % in your answer, it is already stated

Answer 1

1) initial rate of return = r

n = 10

50/(1 + r) + 50/(1 + r)2 + ..... + 50/(1 + r)10 + 1000/(1 + r)10 = 1000

r = 5%

2)

yield of return (Current) = r

n (remaining) = 5

PV = 500 = 50/(1 + r) + 50/(1 + r)2 + ..... + 50/(1 + r)5 + 1000/(1 + r)5

r = 22.74%

3)

yield of return (Current) = r

n (remaining) = 4

PV = 700 = 50/(1 + r) + 50/(1 + r)2 + ..... + 50/(1 + r)4 + 1000/(1 + r)4

r = 15.65%

4)

yield of return (Current) = r

n (remaining) = 3

PV = 900 = 50/(1 + r) + 50/(1 + r)2 + ..... + 50/(1 + r)3 + 1000/(1 + r)3

r = 8.95%