A six-year government bond makes annual coupon payments of 6% and offers a yield of 3% annually compounded. Suppose that two year later the bond yields 1% at the end of the year. What return has the bondholder earned over the 24-month period? Multiple Choice 16.1% 28.6% 25.5% 21.3% 17.2%

A six-year government bond makes annual coupon payments of 6% and offers a yield of 3% annually compounded. Suppose that two year later the bond yields 1% at the end of the year. What return has the bondholder earned over the 24-month period? Multiple Choice 16.1% 28.6% 25.5% 21.3% 17.2%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 12P: Bond Yields and Rates of Return A 10-year, 12% semiannual coupon bond with a par value of 1,000 may...

See similar textbooks

Related questions

Q: Calculate the current price of the following bonds: a) Bond A has a face value of $22,000 and…

A: Note : As per the guidelines, only first question will be answered. Kindly post the remaining part…

Q: Bond P is a premium bond with a coupon rate of 8 percent. Bond D is a discount bond with a coupon…

A: A Capital Gains yield is a rise in the price of a security such as stock, bond etc.

Q: A five-year bond has an 8% coupon rate and a face value of $1000. If the current price of the bond…

A: The current yield is the annual interest earned divided by the current price of the bond.

Q: A bond matures in 12 yesrs has a $1000 par value. The annual interest rate is 13 percent. The…

A: Time period of bond = 12 years Par value = $1000 Coupon Rate = 13% Yield to maturity = 14%

Q: You are pricing a 10-year, 7 percent coupon bond with a $1,000 face value. Coupon payments are made…

A: This question provides that other similar maturity & credit quality bonds have the yield to…

Q: A four-year bond with a yield of 10% (continuously compounded) pays an 20% coupon at the end of each…

A: Time to maturity is 4 years Bond yield is 10% continuously compounded coupon rate is 20% Par Value…

Q: 1. A 6-month Treasury bill with redemption amount of 10,000 is purchased to yield an annual…

A: T-Bills and bonds provide fixed income to the investors for the particular period and face value…

Q: A 30-year bond with par value $1,000 has annual coupons and sells for 1,300. The write-down in the…

A: Bonds are a part of debt instruments having fixed time to maturity. Bonds carry two types of…

Q: A 30-year bond with a face value of $1,000 pays $35 every 6 months and has a yield to maturity of 4%…

A: Return rate which an investor can earn from holding the security for a particular time period is…

Q: Consider a bond with a face value of $1,000. The coupon is paid semiannually and the market interest…

A: A bond represents a contract where a borrower promises to pay the principal amount along with…

Q: The

A: Capital gains yield =p1-p0/p0 Po=original purchase price of security P1=current market price of…

Q: Assume the government issues a semi- annual bond that matures in 5 years with a face value of $1,000…

Q: A 2-year Treasury bond pays coupon interest semiannually. Suppose the annual coupon rate is 8%, the…

A: A risk-free bond that is issued by the government, and also has a more than 20 years maturity period…

Q: A 10-year U.S. Treasury bond with a face value of $1,000 o§ers a coupon of 5.5% per annum (pa)…

A: Price=Coupon amount*PVAF(YTM,n)+Redemption value*PVIF(YTM,n)

Q: A two-year bond pays a coupon rate of 10 percent and has a face value of $1,000. (In other words,…

A: Answer YTM = {interes + (maturity value- current price )/n}/(maturity value- current price )/2

Q: The duration of a 20-year, 8 percent coupon Treasury bond selling at par is 10.34 years. The bond’s…

A: Duration of 20 year Treasury bond=10.34 years Interest payment frequency= Semiannually Coupon rate=…

Q: a $1,000 face value bond matures in 30 years and pays semi-annual coupon payments based on an annual…

A: A bond is a debt instrument issued by companies or the government to raise funds from the public and…

Q: A 10-year Treasury note has a face value of $1,000, price of $1,200, and a 7.5% coupon rate. Based…

A: A treasury note is a kind of debt security issued by the US government that provides a fixed coupon.

Q: A bond has just been issued. The bond will mature in 3 years. The bond’s annual coupon rate is 12%…

A: Bonds refer to the financial instruments which are raised by the institutions for raising funds from…

Q: Assume the government issues a semi-annual bond that matures in 5 years with a face value of $1,000…

A: Price = Coupon Amount * PVAF ( Semi annual YTM, Number of half years ) + Face value * PVIF ( Semi…

Q: A $1,000 bond has a coupon of 5 percent and matures after twelve years. Assume that the bond pays…

A: The price of the bond is the present value of the bond's cash flows. The current yield is the coupon…

Q: A 10-year government bond has face value of OR 200 and a coupon rate of 6% paid semiannually. Assume…

A: Hi, since multiple questions are posted, I will answer the first one as per the guidelines. Please…

Q: A government bond matures in 7 years, makes annual coupon payments of 5.6% and offers a yield of…

A: Bond - It is an instrument that represents the loan made by the investor to the company which the…

Q: A seven-year government bond makes annual coupon payments of 5% and offers an interest rate (ie.…

A: Purchase price for a 7-year government bond with 5 percent annual coupon:…

Q: The yield on a bond is 6% annual. The face value of the bond is $1,000. The bond pays semi-annual…

A: A financial instrument that does not affect the ownership of the common shareholders or management…

Q: The KLM bond has a 8% coupon rate (with interest paid semi-annually), a maturity value of P1,000,…

A: Bond price is the present value of future payment at a given interest rate. Future payments includes…

Q: A bond has 5 years to mature. Its face value is 1500 and pays a coupon of 12% coupon is paid on a…

A: Here, Time period of Bond is 5 Years Other Details are as follows:

Q: Berk Bhd issues bonds that pay interest semi-annually and have maturities of 1 year and 30 years.…

A: Bond price is the present value of all the future cash flows associated with the bond discounted at…

Q: A 20-year bond has a coupon rate of 6% annually and a principal of $1,000.00. Alternative bonds are…

A: Value of bond is present value of coupon payment plus present value of par value.

Q: A two-year amortizing bond has a coupon rate of 4% and pays its coupons semi- annually. Coupon…

A: A bond is a debt instrument used to raise capital. It is marketable security, i.e., it can be traded…

Q: Company B has a bond outstanding that pays a 8% coupon. The interest is paid semi-annually, and the…

A: Current yield can be calculated by dividing the coupon amount with current selling price of bond.…

Q: A ten-year government bond makes annual coupon payments of 7% and offers a yield of 3% annually…

A: Bond is a debt instrument issued by companies and government. It is a fixed income instrument which…

Q: XYZ issued a bond with a par value of P1,000. The bond pays an interest of P35 each quarter, and has…

A: We need to calculate the price of bond which will be sum of the present value of all coupon payment…

Q: A government bond matures in 30 years, makes semi-annual coupon payments of 6.0% ($120 per year) and…

A: A financial instrument with a fixed cost that helps a company to raise funds for business operations…

Q: Consider a bond with a face value of $1,000. The coupon is paid semiannually and the market interest…

A: Using PV function of excel

Q: A twenty-year government bond with a face value of 120$ makes annual coupon payments of 8% and…

A: Number of years = 20 Face value FV = $120 Annual coupon rate = 8% Annual yield now = 3% Annual yield…

Q: A 5-year treasury bond with a coupon rate of 8% has a face value of $1,000. What is the semi-annual…

A: In this question we require to compute the semi-annual interest payment.

Q: A twenty-year government bond with a face value of 120$ makes annual coupon payments of 1% and…

A: Bond valuation is finding the current market value of a bond , the value of a bond is calculated as…

Q: A 3-year bond pays annual coupons at 5%. lts par value is $1000. If its yield to to maturity is 4%,…

A: Macaulay Duration is calculated using the below formula. Here, ti = time till cash flow PVi =…

Q: twenty-year government bond with a face value of 120$ makes annual coupon payments of 6% and offers…

A: In this problem we bond price in both period and difference will be return earned.

Q: A 8-year Oman government bond with a face value of OMR1,000 pays a coupon of 8% (4% of face value…

A: Bonds are valued by the present value of all future cash flows. Future cash flows include periodic…

Q: . Rogoff Co.'s 20-year bonds have an annual coupon rate of 10.0%. Each bond has face value of $1,000…

A: Par value (FV) = $1000 Coupon rate = 10% Semi annual coupon amount (C) = 1000*0.10/2 = $50 Years to…

Question

A six-year government bond makes annual coupon payments of 6% and offers a yield of 3% annually compounded.

Suppose that two year later the bond yields 1% at the end of the year.

What return has the bondholder earned over the 24-month period?

Multiple Choice

16.1%
28.6%
25.5%
21.3%
17.2%

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1 Analysis

VIEW

Step 2 Calculation of rete of return to bondholder

VIEW

Step 3 Conclusion

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Current Yield for Annual Payments Heath Food Corporations bonds have 7 years remaining to maturity. The bonds have a face value of 1,000 and a yield to maturity of 8%. They pay interest annually and have a 9% coupon rate. What is their current yield?
Bond Yields and Rates of Return A 10-year, 12% semiannual coupon bond with a par value of 1,000 may be called in 4 years at a call price of 1,060. The bond sells for 1,100. (Assume that the bond has just been issued.) a. What is the bonds yield to maturity? b. What is the bonds current yield? c. What is the bonds capital gain or loss yield? d. What is the bonds yield to call?
Yield to Maturity and Yield to Call Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = $1,090). What is the yield to maturity? What is the yield to call if they are called in 5 years? Which yield might investors expect to earn on these bonds, and why? The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
Bond Valuation with Semiannual Payments Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?