A 10,000 Par Disney bond has a 4% coupon and will mature in 10 years.   If its yielding (YTM) 5% when you buy it, and in 2.38 years you sell it when its yielding 4% what will be your sale proceeds (how much $$ will you get when you sell it? I'm not looking for your profit?

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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A 10,000 Par Disney bond has a 4% coupon and will mature in 10 years.

 

If its yielding (YTM) 5% when you buy it, and in 2.38 years you sell it when its yielding 4% what will be your sale proceeds (how much $$ will you get when you sell it? I'm not looking for your profit?

Expert Solution
Step 1

Yield to Maturity:

The yield to maturity (YTM) is the expected annual rate of return for a bond assuming that the investor holds the bond until its maturity date. YTM is calculated using the following formula:

YTM= (FV/PV)1/n -1

YTM= yield to maturity

FV= bond’s maturity value or par value

PV=the bond’s value/price today

n=number of years to maturity

Present Value of a coupon bond:

 =C1+i+C(1+i)2+...+C(1+i)n+ F(1+r)n=C1-(1+i)-ni +F(1+i)-n 

C= coupon payment

i= interest rate/ YTM

n= Time to maturity

 

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