Question

Homework: Chapter 7 HW Save Score: 0 of 1 pt 15 of 22 (3 complete) HW Score: 13.64%, 3 of 22 pts Problem 7-5 (similar to) Question Help (Bond valuation) At the beginning of the year, you bought a $1,000 par value corporate bond with an annual coupon rate of 9 percent and a maturity date of 11 years. When you bought the bond, I had an expected yield to maturity of 12 percent. Today the bond sells for $940 a. What did you pay for the bond? b. If you sold the bond at the end of the year, what would be your one period return on the investment? Assume that you did not receive any interest payment during the holding period. a. The price you paid for the bond is $ (Round to the nearest cent.)

Answer 1

6 1,000 9% 1 90 11 A 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 = 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 price 11 12% 12% PV(RATE,NPER,PMT,FV)*-1 Bond price $ 821.87 =PV(12%,11,90,1000)*-1 One-period return 14.37% =(940-821.87)/821.87

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