Question

Table 10-1 Bond price table (10% Interest Payment, 20 Years to Maturity) Yield to Maturity 2% 4% 6% 7% 8% 9% 10% 11% 12% 13% 14% 16% 20% 25% PV of PV of Principal Coupons $1,635.14 1,359.03 1,146.99 1,059.40 981.81 912.85 851.36 796.33 746.94 702.48 662.31 592.88 486.96 395.39 Bond Price $672.97 456.39 311.80 258.42 214.55 178.43 148.64 124.03 103.67 86.78 72.76 51.39 26.08 11.53 $2,308.11 1,815.42 1,458.80 1,317.82 1,196.36 1,091.29 1,000.00 920.37 850.61 789.26 735.07 644.27 513.04 406.92

Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decrease from 10 to 9 percent.   

a. What is the bond price at 10 percent?

Bond price =

What is the bond price at 9 percent?

Bond price =

  
c. What would be your percentage return on the investment if you bought when rates were 10 percent and sold when rates were 9 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Return on investment

%

Answer 1

a) From the table, Bond Price when rate is 10% = $1,000.00

b) Bond Price when rate is 9% = $1,091.29

c) Return on investment = 1091.29 / 1000 - 1 = 9.13%