Question

7. (6 pts)  An investor purchases a just issued 30-year, 10.000% semi-annual coupon bond at 107.956 percent of par value and holds it to maturity. The bond’s yield to maturity is 9.214%, and assume it is constant through the bond’s life.  All coupons are reinvested to maturity at the yield to maturity.  Show the sources of return below.

(a)  Total coupon payments:   

(b)  PAR value at maturity:  

(c)  Reinvestment income from coupons: 

(d)  Total value at maturity:   

(e)  Realized rate of return (horizon yield) at maturity: 

 

8. (6 pts)  An investor purchases a just issued 30-year, 10.000% semi-annual coupon bond at 107.956 percent of par value and sells it after 10 years. The bond’s yield to maturity is 9.214%, and assume it is constant through the bond’s life.  All coupons are reinvested to maturity at the yield to maturity.  Show the sources of return below.

(a)  Total coupon payments:   

(b)  Reinvestment income from coupons: 

(c)  Sale price of the bond after 10 years:

 

(d)  Total value after 10 years:   

(e)  Realized rate of return (horizon yield) after 10 years: 

 

9. (6 pts)  An investor purchases a just issued 30-year, 10.000% semi-annual coupon bond at 107.956 percent of par value and holds it to maturity. The bond’s yield to maturity is 9.214% at time of sale, and rises to 10.100% immediately after the purchase but before the first coupon is received.  All coupons are reinvested to maturity at the new yield to maturity.  Show the sources of return below.

(a)  Total coupon payments:   

(b)  PAR value at maturity:  

(c)  Reinvestment income from coupons: 

(d)  Total value at maturity:   

(e)  Realized rate of return (horizon yield) at maturity: 

 

10. (6 pts) An investor purchases a just issued 30-year, 10.500% semi-annual coupon bond at 107.956 percent of par value and sells it after 10 years. The bond’s yield to maturity is 9.214% at time of sale, and rises to 10.100% immediately after the purchase but before the first coupon is received.  All coupons are reinvested to maturity at the new yield to maturity.  Show the sources of return below.

(a)  Total coupon payments:   

(b)  Reinvestment income from coupons: 

(c)  Sale price of the bond after 10 years:

 

(d)  Total value after 10 years:   

(e)  Realized rate of return (horizon yield) after 10 years: 

(f)  Because the yield to maturity changed between bond purchase and sale, the final bond price is not on the constant yield price trajectory curve.   A capital gain or loss is realized on the sale.  What is the capital gain or loss for this bond transaction?

 

11. (6 pts)  An investor purchases a just issued 30-year, 10.500% semi-annual coupon bond at 107.956 percent of par value and sells it after 15 years. The bond’s yield to maturity is 9.214% at time of sale, and falls to 8.800% immediately after the purchase but before the first coupon is received.  All coupons are reinvested to maturity at the new yield to maturity.  Does the investor realize a capital gain or loss on the sale, and by what amount (expressed as % of PAR)?