Question

Suppose that you just bought a four-year $1,000 coupon bond with a coupon rate of 6.3% when the market interest rate is 6.3%. One year later the market interest rate falls to 4.3% The rate of return earned on the bond during the year was % (Round your response to two decimal places.)

Answer 1

100 Rate on bond- $1000 coupon rate = 6.31 Market interest rate - 6.31 .: Market price of Bond $1000+ 6.34 x(1000) - $1000+$63 x 1000 - $1000+$63 - $1063 one year later Market interest wate-4-3./ : Market price of Bond : $1000 +4-34 X1000) - $1000+ $ 43 x 1000 - $1000+ $43 -$1043 Rate of return during 6.3 (1063-1000) 100 that year x 100 6:3x100 63 107. CS CamScann