Question
Asked Sep 19, 2019
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You buy a 20-year bond with a coupon rate of 7.6% that has a yield to maturity of 9.5%. (Assume a face value of $1,000 and semiannual coupon payments.) Six months later, the yield to maturity is 10.5%. What is your return over the 6 months?

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Expert Answer

Step 1

Calculation of Return over the 6 months:

The return over the 6 months is -3.84%.

Excel Spreadsheet:

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fa 3В9-B8+в3) B8 В10 А В 1 Face Value 2 Coupon Rate 3 Coupon Payment (Semiannual) $1,000 7.60% $38.00 4 Yield to Maturity (Semiannual Rate) 5 Yield to Maturity after 6 Months 6 Number of Periods (Semiannual) 7 Number of Periods after 6 Months (Semiannual) 8 Present Value of Bond 4.75% 5.25% 40 39 $831.25 $761.35 9 Present Value of Bond after 6 Months 10 Return over the 6 months -3.84%

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