Question

You purchase a 30-year bond today with a $10,000 face value that makes annual coupon payments at a 6% coupon rate (a) If the yield to maturity on 30 year bonds at the time of purchase was 5%, how much did you pay for the 30 year bond? (b) After holding the bond for 1 year, you find that the yield to maturity on 29 year bonds is 6%. What s new price of your bond and what has been the rate of return from holding the bond over the first year?1 at the top of the present value table to compute 11+i) (c) After holding the bond for a second year, you find that the yield to maturity on 28 year bonds is 4.5%, what is new price of your bond and what has been the rate of return from holding the bond from the first year to the second? he formula that you need

Answer 1

1.
=6%*10000/5%*(1-1/1.05^30)+10000/1.05^30=$11,537.2451

2.
New Price=6%*10000/6%*(1-1/1.06^29)+10000/1.06^29=$10,000.0000

Rate of return=(10000+6%*10000)/11537.2451-1=-8.1236%

3.
New Price=6%*10000/4.5%*(1-1/1.045^28)+10000/1.045^28=$12,361.4310

Rate of return=(12361.4310+6%*10000)/10000-1=29.6143%