Reference no: EM132987167

A friend of yours purchased $20,000 (face value) of McDonald's Corporation bonds for $16,568.18 on September 21, 2016. The bonds have an 8% annual coupon rate and pay interest semiannually on March 20 and September 20. It is now midnight September 20, 2021, and your friend has received all of the semiannual coupon payments. The bonds mature on September 20, 2036.

Problem a. If your friend planned to hold the bonds until they matured, what annual return (APR) was your friend expecting when she purchased the bonds in 2016? (This is called the "Yield-to-Maturity")

Problem b. Suppose that the market rate of interest for similar bonds is 8% (compounded semiannually) today, September 20, 2021? At what price would these bonds be selling today??

Problem c. If your friend were to sell the bonds today at the price you determined in part b, what annual rate of return would she have earned over her five-year holding period? (Regardless of whether she sells the bonds or not, this is called the holding-period return. It is an unrealized return if she doesn't sell them and a realized return if she sees them.)