Bond is the interest rate you earn on your investment

Assignment Help Financial Management

Reference no: EM131844003

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 an annual coupon bond with a coupon rate of 8.2 percent for $795. The bond has 9 years to maturity and a par value of $1,000. What rate of return do you expect to earn on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Rate of return %

Two years from now, the YTM on your bond has declined by 1 percentage point, and you decide to sell.

b. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Price $

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.)

Holding period yield %

Reference no: EM131844003

Questions Cloud

What is its current market value : If the market rate on the CD falls to 8.25 percent, what is its current market value?

Using the profitability index when evaluating projects : Gold Mining, Inc. is using the profitability index (PI) when evaluating projects.

What is the internal rate of return for project : What is the internal rate of return for project X? what is the payback period for project X?

Usefulness of derivatives in practice is least accurate : Which of the following statements about the usefulness of derivatives in practice is least accurate?

Bond is the interest rate you earn on your investment : The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change.

Any futures contract used to hedge have ample liquidity : United requires that any futures contract used to hedge have ample liquidity, what would be United’s best course of action?

What is the percentage change in the price of the bond : Jay, Inc. has 7% coupon bonds outstanding with semiannual payments and is priced at par value. what is the percentage change in the price of the bond?

Industry who decides to hedge the need to purchase jet fuel : Assume United is the only airline in the industry who decides to hedge the need to purchase jet fuel.

What is future value of this investment at the end of year : What is the future value of this investment at the end of year five if 5.02 percent per year is the appropriate interest (discount) rate?

User Account

All Pages