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Suppose you bought a 7 percent annual coupon, a 20-year bond last year when it was first issued. You paid 1,000 for a 1,000 face value bond. The yield-to-maturity of your bond was therefore 7%. If interest rates suddenly rise to 15 percent this year, and hence your bond now has to deliver a 15% yield to maturity. What is your one-year rate of return if you sell the bond this year? -49.58% -8% +49.58% +8% -42.59%

Suppose you bought a 7 percent annual coupon, a 20-year bond last year when it was first issued. You paid 1,000 for a 1,000 face value bond. The yield-to-maturity of your bond was therefore 7%. If interest rates suddenly rise to 15 percent this year, and hence your bond now has to deliver a 15% yield to maturity. What is your one-year rate of return if you sell the bond this year? -49.58% -8% +49.58% +8% -42.59%

Intermediate Financial Management (MindTap Course List)
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 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...
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Suppose you bought a 7 percent annual coupon, a 20-year bond last year when it was first issued. You paid 1,000 for a 1,000 face value bond. The yield-to-maturity of your bond was therefore 7%. If interest rates suddenly rise to 15 percent this year, and hence your bond now has to deliver a 15% yield to maturity. What is your one-year rate of return if you sell the bond this year? O-49.58% -8% +49.58% +8% -42.59%
Transcribed Image Text:Suppose you bought a 7 percent annual coupon, a 20-year bond last year when it was first issued. You paid 1,000 for a 1,000 face value bond. The yield-to-maturity of your bond was therefore 7%. If interest rates suddenly rise to 15 percent this year, and hence your bond now has to deliver a 15% yield to maturity. What is your one-year rate of return if you sell the bond this year? O-49.58% -8% +49.58% +8% -42.59%
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