Question

Please show work in financial calculator

I own a 9% coupon bond with 15 years left to maturity. Every year when I receive my $90 interest I invest it in an account earning 7%. A. How much money will I have in that account at the end of the 15 years? B. At the end of 15 years I will also get $1000 back from the company which issued the bond. How much total will I now have? C. If I bought the bond for par, What is my compound annual rate of return?

I bought a 7% coupon bond at par 12 years ago. During those years I was able to reinvent my interest payments at 9%. The bond just matured. What was my realized YTM on the bond? What was my expected YTM when I purchased the bond? If I had just saved my $70 payments in a cookie jar, what would my realized YTM be?

Answer 1

Compound interest accumulated on the Re invested $ 90 on every year end. Annuity of the Future value is

$A(n,i) = A[\frac{(1+i)^n-1}{i}]$

A is the periodic payment $ 90

i is 7% n is 15 years

applying the figure in the formulae we get $ 2,638.55

B) You will have $ 3,638.55 ($ 1,000 + $ 2,638.55)

C) annual rate of return is calculated by interest received from Bond divided by the par value. It is 9%

$\frac{90}{1000}*100 = 9$