Question

The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY).

a.	Suppose that today you buy a bond with an annual coupon rate of 12 percent for $1,140. The bond has 19 years to maturity. What rate of return do you expect to earn on your investment? Assume a par value of $1,000. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b-1.	Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b-2.	What is the HPY on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

a	YTM of bond	10.29%
b-1	Price of the bond	$1,226.92
b-2	HPY=(Selling price-Purchase price+coupons)/Purchase price	28.68%

AutoSave o 9.3HD Book1 - Excel Sign in - 0 X File Home Insert Draw Page Layout Formulas Data Review View Help Tell me what you want to do Share Comments 2 insert = = 0 E AY O Z Calibri BIU - - 11 - -A A - A - = E General $ -% Paste La- 3- 898 Conditional Format as Formatting Table . Delete - Format Cell Styles Sort & Find & Filter - Select Editing Clipboard Font Alignment Number Styles Cells AB a YTM of bond =RATE(19,12%*1000,-1140,1000) b Price of the bond =-PV(D2-1%,17,12%*1000,1000) C HPY=(Selling price-Purchase price+coupons)/Purchase price =(D4-1140+12% * 1000*2)/1140 Sheet1 Sheet6 Sheet4 Sheet2 Sheets Sheet3 Sheet7 Sheet8 Sheet Ready H -- + 100% JENG 4:37 PM 0