David Palmer identified the following bonds for investment: Bond A: A $1 million par, 10% annual coupon bond, which will mature on July 1, 2025. Bond B: A $1 million par, 14% semi-annual coupon bond (interest will be paid on January 1 and July 1 each year), which will mature on July 1, 2031. Bond C: A $1 million par, 10% quarterly coupon bond (interest will be paid on January 1, April 1, July 1, and October 1 each year), which will mature on July 1, 2026. The three bonds were issued on July 1, 2011. If Bond B is issued at face value and both Bond B and Bond A are having the same yield to maturity (EAR) at issuance, calculate the market price of Bond A on July 1, 2011. David Palmer purchased Bond C on January 1, 2014 when Bond C was priced to have a yield to maturity (EAR) of 10.3812891%. David subsequently sold Bond C on January 1, 2016 when it was priced to have a yield to maturity (EAR) of 12.550881%. Assume all interests received were reinvested to earn a rate of return of 3% per quarter (in another investment account). Calculate: i) the current yield, ii) the 2-year capital gains yield and iii) the 2-year total rate of return on investment for David. [Note that this question is NOT asking for average yearly (total) return. Hint: think of total accumulation as FV (Annuity)of coupons and selling price.]
David Palmer identified the following bonds for investment:
Bond A: A $1 million par, 10% annual coupon bond, which will mature on July 1, 2025.
Bond B: A $1 million par, 14% semi-annual coupon bond (interest will be paid on January 1 and July 1 each year), which will mature on July 1, 2031.
Bond C: A $1 million par, 10% quarterly coupon bond (interest will be paid on January 1, April 1, July 1, and October 1 each year), which will mature on July 1, 2026.
The three bonds were issued on July 1, 2011.
If Bond B is issued at face value and both Bond B and Bond A are having the same yield to maturity (EAR) at issuance, calculate the market price of Bond A on July 1, 2011.
David Palmer purchased Bond C on January 1, 2014 when Bond C was priced to have a yield to maturity (EAR) of 10.3812891%. David subsequently sold Bond C on January 1, 2016 when it was priced to have a yield to maturity (EAR) of 12.550881%. Assume all interests received were reinvested to earn a
Calculate:
i) the current yield,
ii) the 2-year
iii) the 2-year total rate of return on investment for David. [Note that this question is NOT asking for average yearly (total) return. Hint: think of total accumulation as FV (
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